Pricing: Too Critical To Be Left To The Accountants

Last November I was fortunate enough to share a panel at a Legal Marketing Association luncheon with a couple of colleagues who are truly knowledgeable in their field. During the free-flowing discussion I made a couple of comments I didn't have time to expand upon then but will over the next couple of columns.

The first was that pricing was simply too strategic to be left to the accountants so it behooved marketing departments to get engaged in their firm's pricing process. It also presented the ideal opportunity to reinvent themselves, increasingly important given the perceived direction marketing of law firms is headed in.

The second was firms will be more driven by business development efforts than historical marketing ones, which will have an impact on legal directories, publications, marketing staffing levels, advertisements, and ancillary expenditures. The focus will be on a back to a "people-to-people" approach with business development research one of the fastest growing expenses in firms.

The latter comment is a topic for a future column and the former I will address now.

Before I hear from whatever quasi accounting organizations are left and brothers and sisters of the green eyeshade fraternity, there is clearly a role for accountants in pricing decisions! It is just not a lead one but rather a functional one.

In the October 2013 Definitely Mabey column, I touched on the topic of breakeven analysis. In its purest form it will help firms understand the relationship between Cost - Volume - Profits. From a pricing of legal services perspective it will enable firms to understand whether the rates or fees quoted are making a positive or negative contribution to the firm's profits. This is a critical functional step in the pricing of legal services.

The column gave an example of how breakeven analysis could be used for such pricing challenges as:

What is the number of hours required to be billed to breakeven? What is the breakeven fee for a matter estimated to take 250 hours? If my fees drop two per cent how many more billable hours do I have to bill to breakeven? If my fees increase two per cent how many fewer billable hours do I have to work to breakeven? But in the final analysis, pricing and the manner in which your firm handles it (i.e. strategy) defines the relationship between you and your clients. And that is what is too important to leave to the accountants!

A pricing strategy is complex and simple: Complex to the firm in...