Discounting Rates Doesn’t Necessarily Lead to More Work


Originally recorded on the Pricing Matters Podcast by Digitory Legal. Digitory Legal is now part of BigHand. Learn more here.

Aurelia Spivey, Marketing Consultant with BigHand, chats with Sergey Mezhiritskiy, formally the Senior Pricing Strategist with Proskauer Rose LLP. Sergey is currently the Senior Pricing Manager at McDermott Will & Emery and has been working in the legal industry for about 5 years. Before that, he was a Pricing Manager with Allens in Sydney, Australia, and a Pricing Analyst with Debevoise & Plimpton in New York.

During his tenure with law firms, Sergey served as a trusted advisor to partners and firm leaders on pricing-related issues such as rate negotiations, profitability optimization, and process improvements.

Sergey is an Accredited Legal Pricing Professional (ALPP) and holds a PRINCE2 Certificate in Project Management. He graduated in 2014 from the College of Staten Island School of Business with a degree in Economics & Finance.

Sergey held positions as a Financial Advisor with one firm and a Business Analyst with a different company before his move into the legal industry.

Top three takeaways from this episode

  • It's Time to Lead. Legal Pricing Professionals can play a significant role in designing creative pricing solutions that meet the needs of clients during this time of uncertainty without undermining the value that law firms bring to the table.

  • Understand your Key Profit Drivers. Discounting rates doesn’t always lead to more work as your competitors can easily do the same.

  • Improving Data Quality. Historical data remains tricky but process management can help to ensure that current data being recorded and collected can be useful in the future.

I think pricing matters to me, mainly, because it's an important lever in any business. It can help steer towards an increased profit margin. It's a very important lever, regardless of what industry you're in and it's something that is very crucial to any business.

Podcast Transcript:

Aurelia Spivey 
Hi, Sergey. So you and I caught up just before the COVID crisis impacted business, and shelter-in-place orders came into place here in Bay Area and in New York. So I thought it would be helpful for our listeners if you and I would, at the beginning of this podcast, talk about how the Coronavirus has been impacted you and just genuinely get your thoughts on how it's going to impact pricing teams going forward. So yeah, how are you doing?

Sergey Mezhiritskiy  
Well, I'm doing all right. I'd like to think so. And yeah, just adapting to the new way of working from home and trying to meet our deadlines. So yeah, I think so far so good. I think most, if not all, of our offices have been closed down due to the Coronavirus and it's wonderful to see all these, everyone being active despite working from home, and everyone's on call, if there's anything that's needed. We're managing through, so it's pretty good, pretty good so far.

Aurelia Spivey 
I think everyone's just doing their best and it's good that your firm was prepared and ready for you to work remotely. So, tell me from what you've seen so far and just, I suppose using your crystal ball, how do you think this current time is going to impact your role in pricing and pricing teams at law firms?

Sergey Mezhiritskiy  
Firstly, I think that a lot of executives, not just in law firms, especially in times of crisis, will be asking themselves, is it better to cut prices or to accept a decline in volume, and each individual and organization executive will have their own unique take on that. But like taking a step back, I think it's important to understand that a crisis, such as this one, can cause one or more of the key profit drivers price, volume, and cost to develop to the company's detriment. And law firms especially will need to establish how to manage each of those profit levers. Now on price, I expect that there will be more pushback than usual on law firm rates. With clients asking for rate relief and the need to offer more value for money. On volume, I suspect certain practice areas will see a significant drop in volume, while others may increase. It will be crucial for law firms to understand how each of their practice groups will be impacted by this crisis. I imagine some law firms may be dealing with underutilized staff in the near future and they will need to come up with solutions for those issues, hopefully without furloughing staff. Now, on cost, I think law firms will need to come up with creative cost-saving strategies if they experienced price pressure and a lower volume of work, hopefully, without deterring the value the law firm currently brings to the table. I think that from a profit perspective, it is better in a time of crisis to suffer a volume decline than a price decline, discounting of rates doesn't always lead to more work, as your competitors can easily do the same. Frankly, I think that high prices don't discourage clients from buying during stressful times. But companies stopped buying altogether because they perceive high uncertainty and hold their cash, which is understandable during times like these. So a price cut within normal ranges does little to alleviate that uncertainty. This is precisely where legal pricing professionals can play a significant role by working with the client and partners to invent creative pricing solutions that both sides are happy with. It's where the client gets more value for their dollar and law firms still preserve their profitability. So I think that as a pricing professional, we are headed into interesting times, to say the least, and there will surely be daunting challenges ahead. I would suggest clients seek some form of a credit offer, perhaps a volume-based rebate or billing deferrals, to remove some of that cost pressure in a short time. 

Aurelia Spivey 
Welcome to Pricing Matters, a podcast by Digitory Legal. Digitory is a data analytics and cost management platform and service, bringing data-driven pricing and cost prediction to law. My name is Aurelia Spivey, and I will be your host as we speak to leaders who are making an impact in legal pricing, discuss market trends, and find out from them why pricing matters.

Welcome to the Pricing Matters Podcast. Our guest this morning is Sergey Mezhiritskiy. He is the Senior Pricing Strategist at Proskauer Rose. Sergey, welcome to the podcast.

Sergey Mezhiritskiy  
Thank you for having me, Aurelia.

Aurelia Spivey 
You are most welcome. So I always like to start at the beginning, it's very helpful for our listeners to hear a little bit about your background. So let's dig into your pricing journey. 

Sergey Mezhiritskiy  
Sure, my pricing journey is a bit of a shorter one, I would say. I've only been in a law firm pricing space for about five years now. I graduated college with a degree in economics and finance and then after that, I held a couple of different positions as a financial advisor and a financial analyst and then got moved into law firm pricing as a pricing analyst about five years ago, in New York. Then my pricing journey took me to Sydney, Australia as a pricing manager there for a little bit, and now recently back in New York.

Aurelia Spivey 
So I'd love to know, what attracted you to that pricing role at that time?

Sergey Mezhiritskiy  
So at that time, when I first got it, I was just, interested in having a job and exercising my financial model modeling skills and creating these, doing these data analyses, and conducting all these different types of financial analysis. As I got to know a little bit more, I found out that there were actually a lot more interesting aspects to it, the more you delve into it. So now my day varies from day to day. I, on any one day, can do anything from coaching a partner on how to have that pricing conversation with their client to work out a financial model, trying to assess what the impact on pricing is, to being involved in a rate negotiation with clients.

Aurelia Spivey
Thanks for sharing that. I wanted to talk a little about a Thomson Reuters article that you were quoted in, and it was called How to Get Your Client's Perspective on Pricing. So I'd love it if you could talk a little bit more about the thoughts that you had in this article specifically, can you tell us about the characteristics of the most successful pricing arrangements that you've come across in your work?

Sergey Mezhiritskiy  
Absolutely, I think that in any successful arrangement, communication is key, especially depending on the type of work that you do. I think it's a common characteristic across all work types and all pricing arrangements, that communication is a very key factor. Apart from that, other examples can include, that they fill a need for the client as well. So any pricing arrangement would ideally be created with the client's thinking in mind and their needs for when it comes to matter management or a matter of budget. I think that's also an important characteristic. I think another important characteristic is that internally, it still makes a decent amount of profit as well. So it's trying to get a delicate balance of meeting the client's expectations in terms of pricing and ensuring that it's economically viable internally.

Aurelia Spivey 
What I wanted to ask you is a related question. In that article, you talked about how law firms can use the expertise of their business teams to help their clients the most value from their pricing range. Are you, could you share a little bit about with our audience about your experience of working with clients and driving the value in pricing?

Sergey Mezhiritskiy  
Yes, absolutely. You know, first things first, the value of price can vary depending on the need, depending on the client, the industry, or the work type. I think bringing in business professionals that are not part of the legal side of the firm can offer that extra perspective. For example, if you include a pricing and an LPM person or business development person, in that meeting with the client, you'll get a better, they can better ask the questions that are more relevant to the matter management aspects and to kind of figure out what the client wants from a business perspective. Understandably, legal expertise will always be a very significant factor in any client's decision for choosing the firm to do the work, but there's also internally on the client side, there's always a concern around scope creep, around matter budgets being blown through, around keeping their legal spend in check. So I think bringing in non-legal experts or business professionals from the law firm, can actually help show the client that we're willing to work on all, through everything.

Aurelia Spivey 
Absolutely and we totally agree and I think we're seeing a lot, a greater move towards that collaboration in the industry as a whole. Do you have any examples that you could share with us around that? Where you or some of your colleagues have been in a meeting and there's one or two of the things, tactics, or strategies that were suggested by the business team that helped with that engagement? In the long term?

Sergey Mezhiritskiy  
Yes, absolutely. So there was one time where we had to purchase an estimate that would later turn into a fixed fee. But at the time, when we put forward our estimate, the client saw it and was like, well, why does it cost so much? Because they thought it would cost a different amount. And that's when me from a pricing perspective and my colleagues in the LPM perspective, kind of, well, can we query that a little further? Right? So how are you arriving at your data, at your figures? Why is it that you feel that we are more expensive, or that you don't feel like we don't add up to your expectations? And that allowed us to kind of really develop a very interesting relationship with that person to kind of say, well, you know, we trust the data you're giving us, and here's why we, here's how we came up with that estimate, and we would like to see how you would come up with that estimate, to make sure that what we're doing is a lot, what we're looking at is completely aligned. So we're looking at the same figures, we're looking at the comparable scope, we're looking at comparable timeframes, we're looking at comparable law firms. So it's a good way to make sure that we're trying to compare apples to apples. I think moving forward to something like that is really good for both sides. And in some cases, a law firm could be wrong. In some cases, the client could be wrong. It's about getting and asking the right questions to ensure that both sides are on the same page. And whatever was happening was, well, we figured out that well, that part wasn't factored into our calculation or, and then the client wasn't including certain aspects of the work in their calculation, and once we got the scope narrowed down to exactly what they were looking for, we were able to come to an agreement on what the right fee would look like for them.

Aurelia Spivey 
That's a great example and, again, just a reminder of the importance of scoping on both sides, and also being able to ask the questions and having the data behind your pricing. So we've sort of touched on a value in that conversation. The ambiguous concept of value has come up a lot on our podcast and we're seeing that in the market as well. So do you have any views on how firms can better define and demonstrate value to their clients?

Sergey Mezhiritskiy  
Yes. So I think that asking the right questions is extremely valuable. Because value can mean different things to different people, in different industries, and in different levels of expertise. So I think that asking the right questions can help figure out well, what are the client's expectations in it. Do they see us compared to the same type of firm? Do they value the matter? How much do they value the matter management aspect that we provide? How much of the value is our level of expertise? What are their main concerns? What are the client's main concerns, from a legal management perspective and a legal expertise perspective? What are their concerns? And I think that asking those questions can help shed a light on what the client values most.

Aurelia Spivey 
Absolutely, and I think it's totally right in trying to understand, what is the value for that particular client. And we can't have this, it's not going to be the same, and digging deeper is the only way we're going to be able to have that conversation and then come back to it going forward. So it kind of aligns really nicely with the example that you gave. I'd like to continue the discussion on scoping and you gave a great example of asking the right questions with the client. How do you or do you have any advice on getting lawyers engaged in the scoping process? With you on as many matters as possible? What tactics do you have?

Sergey Mezhiritskiy  
Well, first you need to have a team that can meet that kind of demand. Oftentimes, it's a bit difficult for one pricing person to handle every single proposal and scope every single proposal that comes in the door. But I would say, assuming there's appropriate staffing included, I would say that you have to kind of push them a little bit more. I would say that oftentimes there are things that may be overlooked. So it's up to us, I guess, in the pricing and LPM side, and the business professional side, to be able to figure out, well, what are the comparable matters? If this is for a specific matter pitch? Can we use data from comparable matters? And do we have, have we submitted proposals or engagement or provided engagement letters that are comparable to what we're doing now? And how does that compare to what we're trying to pitch for here? I think having that comparison can have a bit of a lightbulb moment, like, oh, yeah, I should have included that, or oh, yeah, it may include this. It's always good to be able to start from something as opposed to from scratch.

Aurelia Spivey 
The good old precedent is a helpful tool. So you talked a little bit about data there, and I want to dig in a little bit more with you on that. I'd love to hear how you're leveraging data, to increase your precision around pricing. And on the flip side of that, what are the greatest challenges that you're experiencing with data?

Sergey Mezhiritskiy  
Yes, absolutely. So, data is always a bit tricky when it comes to law firms and especially historical data. Very few law firms that I know of actually have very good data recording, especially from 20 to 30 years ago. So I think, now it's getting a bit easier with new technology and new process improvements, to ensure that the data being recorded and collected is useful for, and can be used in the future. I think that for us, we use it for reports, we use it to help identify historical matters, and very granular breakdowns as to, to get an idea of who did how much time and having that as a starting point when we try to put together an estimate, or a fixed fee, or some kind of AFA, for a pitch. So when it comes to some of the greatest challenges, when it comes to creating and gathering precision data, I think that a lot of the data wasn't recorded to the best that it could have been 10 to 15 years ago. So it will be up to us and the LPM team and the other business professionals in the firm to help understand what parts of the data belong where and help collate it to a more granular level to make sure that we are able to use it for future matters.

Aurelia Spivey 
Historical data is something that we talk about a lot back at Digitory Legal, so we totally appreciate all of the issues that you have raised. What role does technology and process management play in making your team successful?

Sergey Mezhiritskiy  
I think that technology and process management are both very important aspects that make my team great here. From a technology perspective, we're always looking into new tools so we can develop. Try to automate as much as we can. Try to gather, instead of doing everything by hand, we can hopefully develop a report that we can, hopefully with a press of a button have all the financial information that we need. It'll definitely expedite and kind of have everything consistent across all the reports that we provide. From a process management perspective, it enables us to get in at the front and get in at the right time where pricing can help. So setting up procedures to notify pricing of a new RFP or if there's a rate issue or rate request that's been received by the partner or the business development professional, that pricing is notified. So that we can help at the right times.

Aurelia Spivey 
I'd love to talk a little bit about the challenges. We've discussed some data challenges, but let's talk about challenges more widely. In terms of, what do you think are the greatest challenges that pricing professionals are facing? And any tips or any ways that you're overcoming them or do you think that they can be overcome?

Sergey Mezhiritskiy  
With any new function, especially at a new major law firm, it's, there are always quite a few different challenges. I think one of the main ones is well, kind of teach the law firm, well, what is pricing and what can we offer internally? Why is it that there's a need for a pricing department? Why is there a need for them to be involved? And I think that for new departments starting out, especially, it's very, it's a bit of an interesting, yet a critical moment, where you got to go out there and within the firm and advertise yourself a little bit and work with senior management to develop processes to get you involved at the right time.

Aurelia Spivey 
Thank you for sharing that. I'd love for you to tell us a little bit about your team and how you prioritize as a team that is such a crucial function to the firm and that is the moment.

Sergey Mezhiritskiy  
Absolutely. Well, luckily at Proskauer there are quite a few different functions that are involved in. So you're never really, truly alone. And anytime there's an issue, there's always a couple of hands on deck that can help you out. So, my team consists, or our team consists of two other people, three other people as well, with the Director of FDNA and the other person in our proposal management side, which she is kind of like the lead when it comes to new RFPs, and a junior analyst. So we tend to prioritize and prioritize in a way where we can provide the most value. In issues and times when it's a little bit difficult to get to everything very thoroughly because of the amount of workload, we have other members in the team, in the firm, that we can ask to help us out a little bit and there's a client ops team that's been wonderful and other business professionals and the finance team as well, that has been absolutely amazing and helping us getting things through the door.

Aurelia Spivey
We're sort of coming to wrap up here, and we're on the pricing matches podcast. I always like to end on this question. Sergey, tell me why does pricing matter to you? 

Sergey Mezhiritskiy  
I think pricing matters to me, mainly, because it's an important lever in any business. It can help steer towards an increased profit margin. It's a very important lever, regardless of what industry you're in and it's something that is very crucial to any business. And I find it interesting because there are all these different aspects to it. A pricing professional is, should be good at understanding the business side, the change management aspects that need to be done, and the financial analysis side, and at times to be a bit of a coach as well. It's all these different hats that a pricing professional wears. And I'm sure there are others that I've met, that I find that type of position very interesting.

Aurelia Spivey 
Sergey, this has been a really interesting conversation. Thank you so much for joining us on the Pricing Matters Podcast.

Sergey Mezhiritskiy  
Thank you. It has been an absolute pleasure and thank you for having me, Aurelia. 

Aurelia Spivey 
Thank you for listening to Pricing Matters, a podcast Digitory Legal. To find out more about our guests please visit our podcast page. If you have any feedback or guests that you think we should feature, please reach out to me. Thank you for listening, see you next time.

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