As law firms grapple with pricing pressures and evolving client expectations, the question of “how much is too much?” has become increasingly complex. A recent Platforum9 session featuring Hugh Owen, Partner at Kinstellar and Ron Given, former GC and Big Four consultant provided valuable insights into the nuances of legal services pricing, challenging conventional wisdom and offering fresh perspectives on this perennial industry challenge.
The Myth of “We Lost on Price”
“Don’t sort of just shrug your shoulders and say, ‘okay, it was price,'” Owen emphasises, challenging the common refrain heard in law firms. The reality, he argues, is more nuanced: Clients are often really saying “All things being equal, you were more expensive than they were, so I chose them.” The key lies in the phrase “all things being equal” – firms need to focus on differentiating themselves beyond price points.
As one participant astutely observed: sometimes firms blame pricing when they lose work because “it’s difficult to admit to some partners that it wasn’t the price… maybe it was the attitude and something else.”
The Client Budget Reality
The discussion revealed a fundamental tension: while law firms aim to maximise profits while preserving client relationships, clients operate within strict budgetary constraints. As Owen notes, “From the point of view of the client… they have a budget, I suppose, most of the time.”
The Evolution of Procurement
The landscape has shifted from pure procurement-led decisions to a more nuanced approach. Legal operations groups now bring a deeper understanding of legal requirements compared to traditional procurement teams treating legal services like commodity purchases.
Regional Disparities in Pricing Trends
A striking contrast emerged between markets. While the Financial Times reported a 40% increase in US legal rates since 2019, a participant from Croatia, noted this trend hasn’t materialized in smaller European markets. Owen confirmed that Central European firms face continued fee pressure, suggesting a more competitive and price-sensitive market.
The Big Four Myth
A particularly interesting revelation came regarding the assumption that Big Four firms have much greater sophistication on pricing. When challenged on this, Owen found no magic formula in his Big Four experience. However, he noted one key difference: “Lawyers are much less informed about things like [internal] cost,” highlighting how law firms often lack detailed understanding of their profit margins compared to Big Four counterparts.
The AI Factor
The discussion touched on how AI is reshaping pricing models. Owen suggested a shift from “time spent” to “time saved” metrics, potentially leading to value-based billing – though he acknowledged the industry hasn’t yet mastered this transition: “Obviously nobody really has got round to serious training or understanding of what value added billing looks like.”
Building Client Relationships
The importance of early client engagement emerged as a crucial theme. Owen emphasised that successful pricing strategies begin with understanding client needs before the RFP stage: “If you’ve left it to the point where you’re ringing up the client and saying, ‘Why did I lose?’ you’ve obviously left it too late.”
Key Takeaways for Legal Professionals
- Invest in client relationships well before pricing discussions begin
- Understand your cost structure and profit margins
- Focus on differentiation beyond price points
- Engage early and often with clients about their needs and constraints
- Consider regional market differences in pricing strategies
- Prepare for AI’s impact on traditional billing models
Looking Ahead
As Owen powerfully concluded: “My feeling is that whenever you talk to people [asking], why did you lose, they will say, ‘oh, we lost on price.’ And if you go back to clients for feedback, you’ll be often told you lost on price because you’re more expensive. What’s actually happening is that it’s not necessarily about price… You’ve got to really focus on how well have you convinced your client that all things are not equal.”
