Last week, we released the results of an industry survey of over 800 legal finance professionals from the US and UK into the latest legal pricing and budgeting trends.
The report is a unique and fascinating insight into law firm strategic priorities to help meet client demands for financial transparency while maintaining profitability as we move into a hybrid working world with increased costs and decreased demand for pandemic-related work.
Something that hit me from the data is that firms seem to have come a long way in recognizing the importance of their people in building a commercial culture that underpins and ultimately drives profitability. Not only are they hiring the right people – but they are using those people to change lawyer behavior through training – then incentivizing those lawyers to enact the change and boost profits.
The report revealed that most firms (66%) have hired new dedicated pricing resources in the last 18 months, and 25% plan to recruit a pricing specialist in the next two years. 24% plan to train lawyers in pricing practices – a number that is encouraging to see and will hopefully climb over time.
Lawyer remuneration incentives/penalties based on reducing billing write-downs are already in place for 40% with 49% planning to introduce them in the next two years. 41% have implemented lawyer remuneration incentives/penalties based on increasing profitability margins, and 47% plan to follow suit over the next two years.
However, for these elements of change management to really work, and to culminate in a cultural shift – firms need timely access to budget updates, for management and partners down to associates. I’ve said it before – no one can manage what they can’t see. Data is the key. Firms need visibility of what is going on under the hood, and how it can be adjusted to boost profits.
When we first conducted market research into this area in 2019 we found that 34% of firms were still using Excel to prepare and manage matter budgets. A tool that doesn’t fit the needs of pricing teams or lawyers trying to track real-time insights of actuals against budget.
In our latest report, it seems things haven’t moved on much, with only 36% providing Associates with real-time automated reporting per matter, and 36% still relying on monthly reports.
How long this will be the case is another question, however. Our results found that 76% plan to introduce a legal pricing solution in the next two years – and 86% of Managing Partners confirmed planned investment in pricing technology.
We know that the pandemic has increased law firms propensity for adopting legal tech, but in my many years working with law firms on matter pricing and budgeting processes – I would say this is the most significant shift yet. Those firms with the matter profitability tools in place, alongside the right people initiatives, will become truly competitive and be best placed to meet client needs.
Read the full report here