BigHand’s latest industry report into law firm pricing and matter budgeting, published today, has revealed the full extent of rising client pressure for pricing visibility and AFAs, and law firms lack of data and processes to meet it – with tracking of actuals against budget taking place for less than 38% of matters.
Over August 2021, BigHand gathered 800 responses to its industry survey from senior legal finance roles, Managing Partners, LPM, and Finance Systems roles from firms of 100+ lawyers in the UK and North America.
The resulting report is an accurate view of the latest legal pricing and matter budgeting trends including:
The findings reveal the extent of client’s focus on costs, with 82% of firms confirming they have experienced rising client demands for financial transparency. Clients also want more AFAs, with respondents reporting an average increase of 27% in client demand since the pandemic began.
At the same time, payment problems have become widespread – not only have 94% of firms experienced a delay in settling bills, but write-offs have also escalated, which has accelerated the need for firms to gain far more control over costs.
The findings show that 98% of firms took radical steps to control costs at the beginning of the pandemic, with the report providing more detail into what these measures were. This has enabled firms to retain profitability during a time of crisis, but with costs inevitably creeping upwards, how will firms maintain the level of profitability achieved during the pandemic?
To meet client expectations, 46% of firms have provided greater visibility of the pricing breakdown at the start of the matter over the past 18 months, and 42% have introduced alternative fee arrangements – with the report providing a detailed breakdown of type and volume. However, less than 2% provide budget updates throughout the project lifecycle on 100% matters, showing that firms are still constrained by a lack of data.
The report also reveals a lack of matter budgeting and failing to use the right resource to complete phases and tasks, which are contributing to profit leakage. 74% of firms have introduced more mandated matter budgeting to counteract this – but less than 3% mandate the use of set budgets for all matters.
Firms understand that cultural change is required to achieve a more profitable business, with the research confirming that dedicated pricing experts, lawyer training, and incentives are all playing an increasing role in matter management strategies.
Responsibility for profits is also slowly extending from Partners to Associates but firms are still not providing the real-time information required to improve matter profitability and reduce budget overruns.
Things are changing however and as the report shows, there is senior level commitment to investing in dedicated pricing solutions, with 86% of Managing Partners confirming investment is planned in technology over the next two years.
Briana McCrory, Group Marketing Director commented
“We conducted the research in response to the increasing demands for data and insight as to what others are doing in the industry. The report highlights how the shift in client relationships to meet demand is being achieved through change. By creating a new culture where every lawyer understands the importance and value of price. By building new, effective processes for matter budgets that deliver consistent control across the firm. And by investing in dedicated pricing technology that supports this change – and provides a foundation for continued innovation. It’s an exciting time for law firms as they embrace this change and drive their businesses forward.”
To find out more or access the full report, click here.