This article is Part 3 of a four-part series focused on subscription-based services for law firms. READ PART 1 and PART 2.
Developing a pricing structure for subscription based legal services can be difficult, especially if your law firm is geared to hourly billing.
For existing clients – historical data and knowledge of the client’s needs can make it easier to set subscribed services fee levels. Other factors, however, can make the process strategically difficult. Concerns can range from setting a price that causes a client to include new competitors in the process to opening oneself to internal scrutiny – “the new deal is not as good as the hourly deal.”
Arriving at a pricing structure for a new client will initially rely on client-supplied data, which I have often found to be limited. In other service industries, it is typical to conduct an in-depth analysis of a prospective client’s current costs and service level expectations. In the legal market, however, due to confidentiality and attorney-client privilege concerns, prospective clients rarely share any data beyond estimates of their total legal spend, types of matters, and possibly a projection of future service needs. A client may provide more information if they believe it will benefit them in developing a credible fee level.
Finally, small and mid-sized clients (legal spend and needs) may not have any organized approach to their legal spend. In these instances, modeling based on assumptions is necessary. Other sources of data may include running simulations on similar current clients and discovery questionnaires designed to organize the evaluation process.
Economically justifying subscribed services fee agreements can rely heavily on removing administrative costs that include billing, collection, the speed of cash flow, other savings related to automating workflows. Efficient staffing models, which include the freedom to assign any appropriate resource to the task, should also provide additional cost efficiencies and better realization (value for time spent). Firm’s who primarily bill hourly can struggle with cost allocation for non-hourly billing approaches.
It is also important to gain agreement on the cost savings that the client can realize, which include reduced bill review, matter management, and payment processing.
A Trial Run
Such clients will require a more fundamental business case:
- clients who do not have an organized process for managing their legal spend,
- clients who do not take a strategic approach to their legal spend or
- clients who do not yet understand their legal needs will require a more fundamental business case.
To insulate the client and firm from the risk of a bad agreement, I suggest a trial period with a reassessment opportunity. The length of the trial period can depend on the scope and complexity of the agreement.
Focus on Efficiency
Finally, considering compensation drivers and incentives for timekeepers working on subscribed services accounts is necessary. The focus must shift to efficiency and adherence to service levels from billable hours based compensation and pay.
Keeping time on on subscribed services accounts is still necessary for internal measurement purposes. The type of services provided can inform the level of detail needed, but a code based timekeeping system that is tied to matters, projects, advice or another logical schema will work. Recall that one element of an SSA is to reduce administrative burden.
A code based timekeeping system that groups like tasks can facilitate advanced metric analysis including efficiency analysis for each timekeeper, timekeeper experience level, task level, and several others that can help identify improvement areas. The data should also indicate potential staffing issues, client-side inefficiencies, and key profitability metrics. All of these data can inform operational decisions, timekeeper compensation and incentives, and future pricing decisions.
A predisposition to hourly billing and profit measurement is a major challenge to the creation of a successful subscribed services model in many law firms. A well-developed cost accounting process and profitability measurement system can encourage partners to allow the time needed to perfect a subscribed services model.
Check back on our blog soon to read more about subscription based legal services, including:
- Challenges of this type of billing model.