One of the more interesting responses to the financial crisis that gripped the world in 2008-2010 was the “new and improved” focus on running a professional services firm as a business. Accounting firms around the world tightened their belts, scrutinized expenses, right-sized staff, and started looking at profitability in a whole new light. In many ways, CPA firms are ahead of law firms when it comes to marketing and practice management, but one development has started to take hold in the legal arena that those on the accounting side need to pay attention to – the introduction of the position of Director of Pricing and Project Management in larger law firms. With this law firms are slowly beginning to gain ground and expand and with the addition of marketing firms similar to Gladiator Law Marketing, they are embracing what they need to grow.
In 2008, Linklaters, a law firm with 29 offices around the globe, became the first international law firm to establish a Pricing Director position. By the end of 2008, three other law firms followed suit. Addressing the challenges of the recession, law firms started to embrace the move away from “any dollar is a good dollar” towards a focus on profitability, with some changing partner compensation models tying compensation to profitability, not to book of business. Today, estimates are that more than 200 law firms have someone in a position in management that directly helps set pricing, negotiates with clients, and helps with project management to ensure the profitability of the firm. The profitability of a law firm is important for them to carry on and help people. Advertising a law firm helps with bringing in people who are in need of their services, there are ways that lawyers can advertise their firm by using a Law Firm PPC service, researching this can show them how advantageous this can be in terms of legal marketing.
In June, IPA attended the Legal Marketing Association’s Project Management, Pricing and Process Improvement (P3) Conference focusing on practice innovation in these three disciplines. Attending this conference were the pioneers of this fledgling “profession within a profession,” with titles such as “Director of Strategic Pricing and Analytics,” “Pricing Manager,” “Director of Pricing,” “Director of Global Pricing and Legal Project Management,” “VP of Practice Management and Pricing,” “Pricing and Budget Director,” “Manager of Strategic Pricing and Profitability Analysis,” and similar titles that reflect the evolving nature of this position.
In an unscientific poll of some of the attendees at the conference, anywhere from 15-50% of engagements are billed on something other than an hourly basis, and it is in this realm that pricing directors earn their keep.
IPA sat down with Stuart Dodds, arguably the patriarch of the position of Director of Pricing, as the individual that Linklaters tapped in 2008 to help focus the firm on pricing and profitability. (Dodds considers himself one of the “old veterans” – those that have been in the pricing position for more than three years.)
Back in 2008, both Linklaters and Dodds recognized a couple of realities: 1) that lawyers are brilliant technicians but were not schooled in strategic pricing or profitability; 2) that as someone who best represented the client’s interests, there was an inherent conflict when a law firm partner changed positions and was sitting across the table in a fee negotiation with a client; and 3) that clients who were trained to demand discounts on professional fees could still be very profitable to the firm – but both pricing and project management would have to be elevated to a more formal process.
By 2010-2011, the role of Pricing Director within the legal profession really started to take off. “There’s no one answer as to what this role is,” Dodds tells IPA. “It really depends on the culture of the firm.”
In his current role as Director of Global Pricing and Legal Project Management for Baker & McKenzie, Dodds exercises multiple facets of his role on a regular basis – from change agent to counselor to negotiator to training both partners and clients on finding win-win solutions to client needs.
On pricing, Dodds notes that “if it’s a ‘side of the desk activity,’ it doesn’t get the proper attention it deserves.” Dodds notes that pricing and service delivery are inextricably linked, which explains why he has taken on the dual role of overseeing both functions. Dodds explains thresholds may vary depending upon the type of work, overall relationship, and Practice Group involved as to when to bring him in for consultation and engage with the client. “It could be as low as a few thousand dollars, but certainly anything above $500,000 will call for some involvement,” Dodds tells IPA.
IPA also met up with Toby Brown, another of the original group of trailblazers who helped create the position when he was first hired seven years ago. Brown, now Chief Practice Officer at Akin Gump Strauss Hauer & Feld in Houston, never really intended to get into law firm pricing and project management. He was a consultant to law firms providing strategic management, marketing and technology consulting to bar associations, law firms, legal departments and technology companies.
In 2007, he was brought in to help the pricing task force developed by Fulbright & Jaworski to help them understand some of the critical pricing pieces that they should be considering. At the end of one of the initial meetings, Brown tells IPA, the task force leader said, “We didn’t know it before, but your expertise is exactly what we’ve been craving.” He joined the firm as Director of Knowledge Management and Marketing, and by 2010 morphed his role into the Director of Business Development and Alternative Fee Arrangements.
Shifting From “Hours and Revenue” to “Revenue and Profit” Mentality
Brown describes what’s going on in the 200+ law firms who have a pricing director as a “foundational shift” from thinking about hours and revenue to thinking about revenue and profitability. He says that a correlation between revenues and compensation helps measure profitability at the associate level, but when he looks at profitability at the partner level, things tend to break down. Brown begins his analysis as if he has had this conversation many times before. “There’s ‘gross margin,’ where all partner compensation is treated as profit.
‘Contribution margin’ treats all partner compensation as a cost. And then there’s ‘net margin’ – a hybrid of the two – where portions of partner compensation are treated as a cost. That’s the model we are pursuing.” Brown challenges his profession – and the accounting profession – to determine where the true value of an equity partner arises from. “While it’s of course critical to ensure that the job gets done, the real value of equity partners to the firm is as an owner helping to grow the firm.”
So What Exactly Does a Pricing Director Do?
Dodds and Brown, and the dozens of others who have helped develop this new profession, know that their role requires them to be adept at knowledge management, practice management, emotional intelligence, change management, and understanding the numbers that lead to profitability. “To say we’re a jack of all trades is an understatement,” one conference attendee told IPA. Depending on the culture of the firm, a pricing director can serve roles as varied as “just give me a number to quote on a proposal” to negotiation with a client or prospect to actively getting involved in a change management program with either the client or the partner – or often both – to uncover a win-win.
How Does the Process Work?
Again, there are many variations of the role, and most law firms are still experimenting with this fledgling position and trying to figure it all out. In Brown’s case, his involvement usually starts with a call from a partner, often with anxiety in his voice, with an opportunity to do some work for a client or prospect and often unsure of the right pricing model to suggest. “Personalities that are drawn to the professions are high level subject matter experts, but not pricing experts,” Brown adds.
Brown’s role is to really understand what is driving the client needs, and if unclear, he will request a meeting with the client to dig deeper. He recognizes that not many pricing directors are given direct access to clients but feels that it is a critical part of his job. “Once we know the client drivers,” Brown says, “we try to understand the pressures they are under to change the way they purchase legal services.” By better understanding the needs and pricing parameters of the client, Brown can then go to work to craft win-win pricing models that will work for both the client as well as the firm.
One of his favorite ways of discovering what’s important to clients is to ask the question, “A year from now, if this project is a success, what are the elements of that success that you’ll be anxious to tell management about?” That, he says, gets right to the core of what is driving the client purchasing decisions.
When Does a Firm Warrant the Addition of a Pricing Director?
Dodds takes a different perspective on the subject of size. If a firm has 20 partners, for instance, with each of them making just one pricing decision each week that could represent 1,000 separate transactions each year. “A more strategic focus from a pricing director can pay off quite quickly,” he adds.
Jim Hassett, a researcher and consultant to the legal profession, encourages law firms to experiment with different profitability models now, and not wait until someone else has figured it all out. Adding a pricing director, he says, is one piece of the project management / pricing puzzle.
What’s Needed For A Pricing Director Position to Succeed?
Both Dodds and Brown agree that very visible support from the chief executive of the firm and senior leaders in the partnership are crucial for this role to work.
“You need executive sponsorship. You need the managing partner’s backing and credibility to support the position,” Dodds says. Both Dodds and Brown are big believers in the need for the pricing director to be adept at stakeholder management, understanding the egos of those they are dealing with, and supporting attorneys and partners to help them “win” with their clients. According to Brown, “We work with people who never want to look foolish, so we need to check our ego at the door. I’m the stage manager, they (partners) are the actors.”
“And be sure to have some quick wins,” Dodds adds. “It will help build your following.”