Finance professionals are in the spotlight as The Lawyer Management asks: What’s a decent profit?
Earlier this week we highlighted the imminent publication of The Lawyer Management Guide: Delivering Legal Services Differently with a short excerpt on knowledge management.
Today it’s the turn of finance professionals to come under the spotlight. In today’s blog, three prominent legal market specialists consider the role of finance professionals in ensuring that a firm can reduce the cost of its services but still maintain profitability.
Achieving a decent margin is an increasingly tough problem to crack for many firms, as clients demand more for less. In today’s blog one of those clients – the general counsel of Supergroup Lindsay Beardsell – has her say on the matter.
Alongside Beardsell are Andrew Merrick, Irwin Mitchell’s chief financial officer and Jason Powell, chief operating officer of Parabis.
In this short extract from the full feature, Beardsell argues that she would want to know if a firm felt it was not making a reasonable profit, “as this would ultimately result in the relationship deteriorating”.
“The best relationships between client and law firm are those where there is complete honesty and a recognition of the pressures on the other party,” adds Beardsell. “The ability to scope work carefully helps with this.”
The Lawyer: What are the main challenges facing law firms’ finance teams when pricing disaggregated work streams?
Jason Powell: The mechanics of pricing work where the ‘production process’ has been de-coupled is relatively straightforward, when based on a clear understanding of time and motion and supported by comprehensive and granular operational data.
However, these models do drive an additional layer of complexity not just in the pricing algorithm, which allots standard costings to different streams of work, but also in the tracking of actual performance to budget.
Law firms now possess (or are investing in) more sophisticated matter recording systems which distinguish between levels of work (and thus the relevant charge), as well as time involved.
Outside of the law these budget performance models are relatively commonplace, with established costing methodologies, eg in the printing industry, standard costing models and the tracking of performance through variance analysis has been around since 1913.
The Lawyer: Where do parties on either side of the equation (ie in-house and private practice) see the right balance in terms of margin?
Andrew Merrick: Rather than a focus on margin per se, we’re certainly seeing a greater focus on fixed-price arrangements, established on the basis of discounted hourly rates. Clients want value. That doesn’t necessarily mean cheaper, it means ensuring transparency of costs and giving them a great service they’re happy to pay for, to come back to us and to tell their friends about us.
However, we will still offer bespoke services as well as that is also what many clients want and are prepared to pay for if the service is good enough. Therefore, reputation and customer service will remain a critical component along with cost.
Lindsay Beardsell: The relationships that work well are those that are a ‘win, win’ in that the client feels like they are getting value for money and the firm feels that they are making a reasonable margin. There will always be some areas where the margin is expected to be lower (eg where there is a retainer for short verbal advice for example) but where more is made on the work outside the retainer. There should be a holistic view of the relationship and the type of work, and there should be complete honesty.
I would want to know if the firm felt they were not making a reasonable profit, as this would ultimately result in the relationship deteriorating.
The Lawyer: Has the hourly rate model finally died?
Lindsay Beardsell: There will always be a place for billing based on an hourly rate, but I do believe that it is now limited to certain types of activity such as litigation and, even with these activities, law firms need to give their clients a degree of cost certainty by giving accurate cost estimates to allow effective budgeting.
Andrew Merrick: I don’t think so. There is certainly an increasing trend of fixed price arrangements in business legal service work, something we have seen in areas of personal legal services for some time. But that doesn’t mean the end of a bespoke service and hourly rate work will continue to have its place in some areas. Our experience is that clients are still prepared to pay for bespoke services if the service is good enough and we intend to carry on offering our clients a range of services and price models to meet their needs.
Jason Powell: Absolutely not, but we see hourly rates increasingly as just one of a number of options available as we move forward. The days of ‘one size fits all’ charges are over.
The Lawyer Management Guide: Delivering Legal Services Differently, which will be published on 30 June, will be the most extensive report into the operational impact of the legal services innovations that are sweeping the UK market we’ve ever produced.
For this report we’ve quizzed a huge range of experts on the trends they’re seeing including private practice partners, general counsel and operational business services leaders from groups including finance, IT, marketing and BD, HR, facilities and risk in firms as diverse as the magic circle, ‘dispersed’ players and large PI providers.
For many of these professionals, innovative delivery mechanisms are now becoming their bread and butter. But what are the biggest challenges and opportunities? And are firms delivering what their clients really want in the ways they really want it?
Over more than 40 pages The Lawyer Management Guide: Delivering Legal Services Differently will detail the most current and pressing issues facing those tasked with delivering the new model legal services.
We’ve also canvassed hundreds of clients to assess the extent of the uptake of services that may be disaggregated, unbundled or fragmented and delivered remotely.
The aim was to see whether the increasing dispersion of law firms’ offerings is producing the results their clients are looking for. In short, whether firms’ efforts to provide clients with ‘more for less’ are meeting their clients’ needs and expectations.
For the results, which are likely to astonish you, you’ll need to wait until 30 June.