Profitable Pricing: Key Takeaways

On November 16, we held our Profitable Pricing course. In this course, we encouraged lawyers to embrace Alternative Fee Arrangements (AFAs) not only to escape the downward pressure against billable rates but also to uncover cool projects with clients (e.g. becoming an outsourced legal department).

For your convenience, we’ve summarized some key takeaways - both from us as well as from our students.

Our Takeaways

1. Value isn’t just pricing

When lawyers hear clients talk about value, they oftentimes assume that this is just a conversation about billing rates. In fact, when clients are mentioning value, they are thinking about several factors beyond price, including efficiency, predictability, and process improvement. If lawyers understand the importance of these factors in the “value conversations”, they actually use these factors to help them achieve higher prices and more profitable work.

2. Revenge of the Firms

Smart clients have been actively trying to in-house legal work that they traditionally delegated to law firms. (And, with AI, this process is just going to speed up.) But, if law firms embrace the opportunities of AFA projects, they can learn to fight back against these negative trends by keeping their traditional work, AND encouraging clients to out-source elements of their in-house work.

3. The M&A Obstacle

Unfortunately, most AFA-based work is not favorable to M&A teams who (i) face huge amounts of uncertainty in their work, and (ii) don’t have the ability to run a series of transactions to fine-tune the work relationship with clients. Since M&A teams usually have a strong voice in decision-making at law firms, it’s essential that firms make it advantageous for M&A teams to appreciate the value of AFA-based projects. In particular, if M&A teams can truly be rewarded for cross-selling efforts, firms can not only win over their support for new pricing models but also leverage their close relationships with clients to more effectively establish AFA-focused work after major corporate transformations.

Takeaways from Our Students

1. Time and Restructuring Needed

“It was really great that the participants were both from the lawyer and client sides - it made the discussion great! I think some of the AFAs would be totally feasible, but as you also mentioned it takes some time and process restructuring in big law firms to implement such models. Usually its still the number of billables that counts (eg for review, bonuses etc).”

2. Finding the Right Audience

“It was quite interesting. I am of the view that this should be also addressed to counsels or partners, or even managing partners, as they should be the first to know on such fee structures. I find it quite important for them to really understand the mechanisms and what it takes to be able to viably propose them.”