Lawyers' fees: the revolution is underway!

Lawyers' fees, like those of many companies, are subject to market changes that call into question their traditional pricing methods.
All law firms are now affected by fundamental trends that have become established in the legal services market. It is a market in which supply now exceeds demand and, apart from a few new areas of law that emerge as technologies and regulations evolve, this situation is set to continue. Although demand from companies and individuals continues to grow, it is increasingly being met by new entrants, such as legaltech players or other regulated professions, and as a result, the market share of traditional law firms is tending to decrease.

Second, it is an increasingly segmented market in which it has never been so difficult to differentiate. Technical expertise is less and less of a differentiating factor in the purchase of legal services, while price is increasingly the determining factor. In an increasingly competitive environment, clients have become very demanding, pushing prices down and challenging time-based billing, while demanding more transparency and predictability in billing.

These new market conditions are at the origin of the real price battle that is raging among legal service providers and that translates in reality into a downward trend in prices for a wide range of services. Law firms are now finding it difficult to maintain their hourly rates: the actual rates are often lower than the posted rates, for partners and associates alike.

It is also becoming more and more difficult to bill for the most standard services: these basic services, with little added value, now have a market price from which it has become difficult to escape, as clients are no longer willing to pay the fees charged by lawyers for this type of service. Moreover, the increasing use of new technologies in the production of legal services (modeling and automation, algorithms fed by artificial intelligence...) means that the number of these standard services is constantly increasing over time. Forced by these developments to differentiate their pricing policies, law firms are now practicing pricing methods that are less and less homogeneous across all their activities.

However, not all companies have the same attitude towards this price war. Most maintain a very wait-and-see and traditional approach to pricing: they understand, complain, try to control their costs as best they can, manage their prices on a day-to-day basis... and in fact struggle to maintain their margins. Some take half-measures: they take up this issue, think about it, train their associates in negotiation and pricing... but in the end only make adjustments without any real desire to overhaul everything. They continue to focus their pricing policy on time spent, which is certainly a good management tool, but not sophisticated enough for a pricing policy based on added value.

Finally, some pioneering firms have adopted a more economic approach to pricing. They do not hesitate to question their business model, to review from top to bottom the way they deliver their services and to develop new pricing policies according to the added value of each service and the type of clients. This approach requires working on several dimensions within a firm: pricing governance (who determines the prices? who is entitled to raise or lower them?), project execution and management (how to ensure that no money is lost at each stage of the process?) and analytics (how to use all the firm's data to develop pricing frameworks and analyze profitability by client?)

This approach, which is resolutely more economical in terms of pricing, implies learning to identify and highlight the added value of each of its services, by integrating a change process that challenges the traditional culture of law firms.

@patrickbignon

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