By Rod Wittenberg of Legal Futures Associate BigHand
Many factors compound the tension surrounding the pricing of legal services. Clients demand greater cost control and predictability while uncertainty reigns supreme. Lawyers face higher competition for fewer opportunities in certain practice areas. Rising expenses counteract efforts to enhance profit margins, as do client expectations for discounts and write-offs.
In short, law firms are stuck between pressure from clients to lower legal fees and the need to raise prices due to declining profits. Recent market research by BigHand revealed a marked division in how law firms respond to these challenges: While 30% of respondents have increased prices beyond their standard rates, a staggering 62% have reduced prices.
This striking contrast highlights a need to better understand legal services pricing mechanisms and their related outcomes. Legal pricing software solutions allow firms to rely on data to assess the actual cost of legal work and form a reliable basis for pricing. With data-driven insights, enhanced resource planning, and robust tracking capabilities, law firms can develop advanced pricing strategies that optimize profitability while providing superior client service.
Savvier clients demand more transparency and value
Advanced data analytics tools help law firms meet the demands of sophisticated clients. In BigHand’s survey, 87% of law firms said today’s clients are more business-savvy than ever. They expect lawyers to justify rates for legal services and explain fee arrangements and billing practices in detail. Clients especially want to know how they receive value.
Of the 825 law firms BigHand surveyed, 62% have implemented better financial transparency practices to maintain strong client relationships and workload stability. They set budgets at the beginning of matters, track expenses against the budgets, and consistently update clients on their financial status.
Automating real-time expense tracking helps to ensure costs stay within the agreed-upon range. With daily reporting on critical metrics, lawyers know immediately when actual rates rise beyond initial estimates. They can then make adjustments before fees and costs escalate out of control.
A quarter of respondents have also employed specialists such as pricing experts. These individuals ensure firms adopt the proper processes, personnel, and technology to adapt to industry shifts. They identify inefficiencies that inflate costs and suggest alternative fee arrangements that make financial sense for all involved.
Without an integrated legal pricing solution, however, firms can only guess at the resources required to conclude legal matters. Simply guessing at estimates too often creates unpleasant surprises for clients and firms. That’s one reason around seven in 10 law firms (72% NA, 66% UK) plan to invest in legal pricing solutions in the next two years.
An integrated legal pricing solution provides financial transparency
Legal pricing software relies on historical data and sophisticated algorithms to develop more accurate estimates that consider factors such as scope, complexity, and duration. Pricing data reveals how discounts, write-offs, and fee increases impact metrics such as revenue, profit margins, and client satisfaction levels. Specialists can clone past cases and tweak relevant parameters or apply what-if scenarios to forecast matter outcomes more accurately and create budgets more efficiently overall.
With this knowledge and capability at hand, lawyers can determine the most cost-effective approach for each matter and give clients the explanations and predictability they want. Lawyers negotiate from a position of informed authority when discussing hourly fees, alternative fee arrangements, and customized packages. They can easily demonstrate why the firm charges specific rates and avoid making overly cautious concessions.
Legal pricing transparency supports long-lasting partnerships
Transparency in pricing demonstrates a commitment to fair and mutually beneficial relationships. Clients appreciate upfront discussions about costs. This builds trust that forms the basis for long-lasting partnerships.
With access to reliable pricing data, lawyers can safeguard law firm profits while quickly adapting to changing client needs. Are you ready to implement transparent pricing strategies? Speak with the pricing technology experts at BigHand to learn how you can improve your firm’s financial transparency to maintain healthy client relationships, protect your bottom line, and remain competitive in an increasingly demanding legal market.