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The Transparency Reality

2011 June 27
by John Wallbillich

This is Rule 3 in Zen and the Art of Legal Pricing. This follows from Rule 2, The Premium Pricing Fallacy, where some law firms think high prices alone can create some client demand on their own.

This might have worked 20+ years ago, where many corporate clients used one of a half dozen large firms in their home towns. All priced senior-level services at nearly the same hourly rate. A coincidence? You decide.

Flash forward to 2011. Clients are becoming more price-sensitive because competition makes them more cost-conscious. Through a number of informal techniques, clients are very aware of what different firms charge by the hour. That’s a start, but that’s not transparency.

Here is what transparency will mean for legal pricing: clients will have information on what certain results cost. Totals, along with lawyer, expert and other related cost inputs. This would seem like Nirvana, but not quite.

What Nirvana will look like for general counsel will combine cost information with a quality-based component.

This last point kneecaps the naysayers by allowing a true apples-to-apples comparison. For the 90% of work that isn’t bet-the-company or sell-the-company, GCs will negotiate with real numbers and reasonable parameters. It will put most of the RFPs out to pasture, since that process is nothing about innovation and candidly often a colossal waste of time.

Firms in the AmLaw 200 without a real foothold in true premium work will find the bright light of transparency to be rather uncomfortable. That’s just at the beginning. Longer-term, price transparency will disintermediate some law firms and cause others to lose some of their best people.

The premium rainmakers will go to those firms that can really sustain such work, while the value-oriented newer lawyers will move to smaller firms with lower-cost business models that allow them to price competitively and still capture more of the margin for themselves.

Transparency also allows clients to get more comfortable with smaller firms for discrete tasks and able to see themselves using LPOs on a trial basis.

Results-based pricing information will rock the law firm world. People are working on this.

This seemed like a great topic for a Monday, so there you have it.

Tomorrow, Rule 4: The Burden of Continuity.

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