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“We’ll have a chat at the end” – a $20 Billion Black Hole

5th May, 2017 / News, Support & Operations

We lawyers detest talking about our fees with our clients. We have worked with over 300 law firms in 18 countries and if there is one common denominator, it is a shared perspective that the price conversation is the most unpalatable and stressful aspect of the lawyer/client relationships.

We will do anything we can to avoid it and for many years, until regulation intervened, we could get away without much of a pricing conversation at the outset or at worst, a very vague and abstruse one that kept all our options open.

Most Western legal jurisdictions now have regulatory regimes that require a comprehensive level of engagement with clients around cost at the outset of the matter. Consequently, there has been improvement although rightly or wrongly, many still hold the view that lawyers approach to pricing remains unacceptably opaque.

Notwithstanding the progress that has been made towards price transparency (the numbers) and pricing transparency (the methodology), the profession continues to let itself down in relation to the ongoing pricing conversation. Pricing should never leave the table as a topic but unfortunately the price conversation is often seen as a box to be checked at the outset and not something that needs to be revisited on a regular basis.

This abdication of responsibility is the genesis of the sort of dynamics that we are all familiar with;

· shock and awe when you get a time print out at the end of the job (“good grief, that got away from us!”),
· difficult conversations with clients (“I’m sorry to be the bearer of bad tidings but…”),
· difficult conversations internally (“look I know we said we were going to clamp down on this sort of thing but this really is a good client of mine and we need to take a view on the write-off…”)
· Hey, I’ve got a solution. We have £20,000 over what we told the client so let’s split the difference and knock off £10,000?”

And there you have it. The greatest single reason why the default setting for most firms is broad satisfaction with a realisation rate of 85% to 90%.

Let’s look at the implication of this a little further. Obviously, the net write-off across a firm is never wholly attributable to the dynamics referred to above. But let’s say half of it (7.5%) is. The legal market in the UK is worth approximately £26 billion. That means that perhaps £2 billion is squandered in the fashion described.

Apply this same reasoning to the US market which is worth approximately US$260 billion and you’re talking something in the order of US$20 billion going down the gurgler for no good reason.

I’m sure there will be finance directors who take umbrage with some of my figures and assumptions. I certainly don’t pretend to have brought scientific rigour to the exercise but taking a broad brush view, I imagine we can all agree that we are talking a shed load of money.

As a result, we have made an art form out of procrastination. Why have a difficult conversation now when we can have it later? This approach is delusional. The conversation isn’t going to go away.

There is going to be a conversation and it beggars belief that anyone would seriously think that the conversation is going to go markedly better at the end than a timely intervention when, at an intellectual level anyway, most partners know a discussion should occur.

Nonetheless, our inner voice rationalises and justifies a deferral of the conversation with sage insights such as, “things are developing so quickly, there is just no time to deal with it now”, or how about “the client won’t appreciate being forced to have another pricing conversation mid deal. In fact, they’ll think I’m just taking advantage of them.” … Read Full Article

Contributor: Validatum Blog

Website: www.validatum.com

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