Digital White Papers

December 2013: Business and Financial Management

publication of the International Legal Technology Association

Issue link: http://epubs.iltanet.org/i/231030

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MANAGING THE MIDRIFF: CORRECTLY PRICING THE BULK OF YOUR PRACTICE'S SERVICES •A margin (the senior partner's margin to be substantially lower than the junior associate's) only three areas that can be rethought to respond to pricing pressure: salaries and benefits, fixed costs, and margin. Although we adjust each one of resources required to handle a file through process mapping and task coding only to discover when the actual costs of providing a given legal service are these when offering alternative fee arrangements and more favorable pricing generally, much of the discussion has focused on cutting or rethinking fixed costs through the realization of greater efficiencies, the use of technology and outsourcing to lower cost centers, and maintaining a buffer to absorb any discounted rates we wish to provide. Some firms have even invested heavily in knowledge management and attempted to determine the established, they are above market standards. With this in mind, how should law firms set billing rates? Clients must perceive some correlation between the legal services they receive and the price they pay. The result of this calculation is then divided by the number of hours a lawyer is expected to bill in a year to provide the lawyer's hourly rate. At present, at least two phenomena challenge this formula and the way law firms have tinkered with it for the purposes of pricing. The first is alternative fee arrangements. The second, and more challenging, is the message that many larger clients are sending with respect to what they deem to be a reasonable price for legal services. This message takes the form of inhouse legal, paralegal and translation departments. These clients argue that for a cost of roughly $150 to $200 an hour, they can hire the equivalent of a young partner and pay them benefits. The same applies to paralegals and legal translators. If a client believes it can get most of its routine work done by the equivalent of a junior partner for half the price, then why hire outside counsel? In addition to grappling with how to generate revenue using fixed fees, fee caps and value billing, law firms that intend to provide a full range of legal services to clients now must counter the perception that their clients can provide these services for themselves at half the price. In this formula for setting billing rates, there are THE VALUE CURVE AND HOW IT RELATES TO COSTS Below are two graphs taken from Mark Robertson's

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