Research by Beaton continues to show why clients of BigLaw firms value cost consciousness. If you understand what cost conscious really means to clients, this may not surprise you. But, did you also know that being well rated on cost consciousness by clients allows a firm to exercise price-setting discretion? In other words, you can raise your price – at least to some degree depending on the circumstances – and the clients perception of the value you deliver stays the same. Or even goes up.
In an interview with Australasian Lawyer, Herbert Smith Freehills’ Australian managing partner Jason Ricketts was quoted as saying “We just haven’t stopped on cost consciousness, and our rating has improve again….”
This post explains (at least some of) the public evidence why cost consciousness is valued by clients, why being cost conscious is profitable for law (and all other professional services) firms. And why the managing partner of a major law firm is on the record on cost consciousness.
Drivers of overall client service experience in BigLaw firms
Beaton Benchmarks analysis of what’s most important to clients in their assessment of a law firm’s overall client service performance shows 13 statistically significant drivers for the ‘top-end of town’ firms. Technically speaking, these 13 attributes explain 73% of the attitude clients hold, i.e. how they think and feel about their overall client experience of a firm. The top four, as the chart on the left shows, explain more than half of the attitude.
In no particular order these include no surprises like ‘technical expertise’, ‘reliability’, ‘understanding the client’s business and industry’, and ‘ease of doing business’ with the firm. ‘Innovation’ appears in this list, putatively emphasising the importance large clients are starting to place on LPO, LPM, alternative business models, and the like.
And – ranking in second position of importance – is ‘cost consciousness’. The origins and nature of cost consciousness and cost conscious behaviour have been described in this post on Research. Reveal. A couple of years ago Freehills, as the firm was known then, generously allowed Beaton to publish a case study showing the early pay-back on the firm’s investment in cost consciousness.
By the way, note that perception of fees also makes the list – and is positively correlated! More explaining why this is so and why this is a crucial topic may found here.
Evidence why cost consciousness is valued by clients
Evidence is accumulating that shows how clients value cost consciousness. This should be no surprise because the answers to the question “How responsibly are you (the law firm) spending the business owners’, the shareholders’ or the tax payers’ money is at the heart of behaving in a cost conscious manner.
You are spending clients’ money as if it were your own
“You need to be in a position where you are spending clients’ money as if it were your own,” said Jason Ricketts in the Australasian Lawyer interview with journalist Ben Abbott. “We need to be a alive to the fact that the right cost outcome is just as important as the right legal outcomes; clients can’t be surprised at the end of the process, because that can have a profoundly bad effect on client relationships. It’s not a black box any more, it’s a journey you go on with the client, where you are talking at all key stages about what the cost outcome might be.”
Law firms perform poorly on cost consciousness
In spite of the evidence of the importance of cost consciousness to clients and the role cost consciousness plays in enhancing clients’ perception of value (and hence firms’ ability to minimise price-down pressures), the strange truth is that law firms continue to perform badly on cost consciousness. Examination of the radar chart shows the low performance on cost consciousness – and the narrow band from highest to lowest performer in this analysis of 10 top-end-of-town firms.
Of the 13 drivers to which I have referred above, clients rate performance on cost consciousness by far the poorest. In the each of the last five years, cost consciousness has been scored mid-way between 6 and 7 on a scale from’0′ for ‘extremely poor’ to ’10’ for ‘extremely strong’. Whereas in 2014 the other attributes scored over ‘8’, save for ‘innovation’ which scored 7.3.
So, what’s the problem? Why aren’t firms lifting their game on cost consciousness? The answer it seems lies in the fact that clients’ perceptions of cost consciousness stem largely from the behaviour of the practitioners. We all know that changing lawyers’ behaviour is extraordinarily difficult. Witness the famous ‘herding cats’ metaphor – watch this YouTube clip (again!) for a good laugh and reminder of the challenges.
For more information on what lies behind this chart and the annotations, please contact me or any other member of the Beaton team. And you can also learn in in-depth and in practical terms how to increase your cost conscious behaviours at the beatonlive-Validatum conference on Profitable Pricing for Law Firms in Sydney on 6 August 2015.
It’s not only law firms that will benefit from being more cost conscious
Lest members of other professions are feeling smug about the poor performance of lawyers on cost consciousness, stop and think again. Beaton’s evidence is just as telling in accountancy, consulting engineering and management consulting. It’s not only law firms that will benefit from being more cost conscious, all professional practitioners and their firms will.
+ Four reasons why pricing legal services is not black or white by Richard Burcher
+ Pricing and analytics: Houston, we have a problem! by Richard Burcher
+ Two hard questions about law firms’ fee strategies by George Beaton
Interested in knowing more about pricing legal services?
On 6 August 2015 in conjunction with beatonlive, Richard Burcher will conduct the first world-class pricing conference for corporate and commercial law firms in Australia and New Zealand.
Participation in the full-day 6 August Conference is by registration. Numbers are limited to 100.
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