Last week Clocktimizer and LawVision hosted our first joint Twitter chat. This time, we focused on the question keeping Managing Partners up at night. How can you increase your firm’s profitability? It is part of a series of joint content we’ll be producing together over the coming year. So keep an eye on our social media for more advice, tips and tools to keep your firm ahead of the curve.
Unsurprisingly, for such an important topic, we weren’t short of participants! We’re pretty sure there was smoke coming off our keyboards by the time we’d finished, liking, replying and retweeting. As usual, we’re also putting together a wrap-up of the best bits. So even if you don’t use Twitter you can still be a part of the conversation.
Q1: Is good service delivery the number one thing firms should focus on if they are worried about profitability?
In a short answer, yes. Our participants were overwhelming in their support for this statement. As Mark Medice of LawVision noted “What is interesting is how much new business is gotten when talking to clients — well over 50% of the time a firm will receive more business after a discussion.” However, the questions arose when determining what those clients actually want. Jeffrey Carr, SVP and GC of Univar, pointed out that it is “incumbent on us as customers to actually define that — in terms of objectives, service level experience expectations, financial disciplines.” Jeffery went on to note that Univar have built these expectations into their ACES compensation scheme. In this way, they ensure their external counsel delivers value.
Many joining the chat emphasised the need for communication with the client. Gina Passarella, Editor-in-Chief at The American Lawyer, noted that firms which communicate with clients and then present solutions offer the most value. Gina also offered advice on how to achieve this. “Firms need to understand what they want to be, remove what they don’t, or find a way to offer those tangential services at a reduced price, which requires a different business model, a la A&O/Peerpoint, Hogan/Elevate”. Ron Friedmann also offered tips to those wondering how to get this process started. He suggested beginning a program of client feedback. After this you can work with clients to identify their Service Delivery priorities.
Finally, a number of participants noted that, while Service Delivery is important, there are other factors to take into account. Brent Turner, Manager of Thomson Reuters’ Peer Monitor, noted that “headcount, diligent compensation management, etc have a large effect on profit”. Indeed, our CEO, Pieter van der Hoeven pointed out the connection between good pricing, project management and service delivery. After all, this is why he founded Clocktimizer. To give lawyers an easy way to manage and integrate complete matter management.
Q2: If you price for value, can you hope to be profitable?
Another question that keeps Managing Partners up at night! We have to award ‘tweet of the event’ to Ken Grady for his response. “This is like asking “if you drink water, can you hope to be hydrated”. Of course! But, billable hour is not pricing for value. You price for value, then you control costs/quality, and you make a profit.” We couldn’t agree more Ken!
Much of the debate centered on how we determine what ‘value’ is. Gina, Mark and Ron all discussed the importance of initiatives like the SALI Alliance. In defining process and areas of law, we can move towards a better yardstick for the provision of services. In fact, those wishing to read more should check out the March edition of the American Lawyer. The cover story will be touching on how well these standards are adopted by the legal industry.
Ed Wilson raised a good point about our shifting notions of value. Currently we place a value on the time spent. However, we should be shifting toward a scenario where the value is outcome driven. To that end, Karen Skinner, the CEO of Gimbal, noted that it is important to discover what your client wants and then find the most cost effective way to deliver that. This means properly scoping matters, delegating work to lower cost individuals and using technology to make the process more efficient. At Clocktimizer, we make this process data driven, and then easily tracked. It allows matters to be scoped, kept on budget, and to identify high cost, repetitive work that should be automated or delegated.
Finally, our friends at LawVision noted what an opportunity value based pricing is. “Too many folks mix up value for a discount. Value can be a premium if you are creative with service delivery, client connection, and pricing approaches (e.g., real AFAs). It is an opportunity” So, fellow legal firms, get to know your clients and then get creative with your offers!
Q3: Write-downs are bad for law firm profitability. But are they a sign of poor project management or of mis-understanding your clients needs?
Our CTO, Bram Fokke kicked off this debate nicely. He pointed out that “The #1 frustration of clients is being surprised about the bill. Once that happens, the only options are writing off part of the bill or telling the client to suck it up. Neither is an attractive option.” After all, who among us hasn’t been horribly surprised by a bill we weren’t expecting? Clearly, better communication is vital to avoid unpleasant surprises.
Mark Medice shared some worrying stats for any law firm currently addressing their profitability. “Write-downs are actually quite a problem for most law firms, average anywhere from 5 to 20%. To me it is a resulting from from three things: (1) billable hour which we have been speaking, (2) billable targets, and (3) lack of creative fee structures.” Clearly then, those firms that use tools like Clocktimizer, have some potentially easy wins lined up. Our tool can help set billable targets and build and monitor creative fee structures. Thus avoiding those pesky write-offs.
We also saw some participants share more strategic reasons behind write-downs. Innovation Attorney noted that “It can just be loss leader pricing, a potentially rational way to strengthen / deepen your relationship with a client that makes up for it with subsequent projects (often of higher value) at rack rate. Consider, e.g., a broken deal discount.”
Want to implement these ideas?
As we noted at the beginning, we’ll be hosting webinars with LawVision to discuss all the points raised in this chat. So if you’re a Managing Partner who wants to increase profitability, or a Head of Service Delivery who needs some advice, join us! Either DM us on Twitter, or send us an email to email@example.com