This is Rule 4 in Zen and the Art of Legal Pricing. This follows from Rule 3, The Transparency Reality, where clients will have better data on what law firms charge for discrete projects, and how they are rated in the process.
That continuity is a burden now is due to what a benefit it has been for law firms going on 50 years. Continuity is when revenue recurs. It is what makes Netflix a powerhouse and why conglomerates from GE to IBM have moved aggressively into services, rather that just relying on products.
The first sale pays the rent, the monthly services buy the corporate aircraft.
The molten core of corporate legal costs is not just that some law firms charge a lot per hour, or that they bill a lot every month. It’s that they do so like clockwork, month in and month out. What was they new monthly high for a given client’s total invoice becomes the baseline for adding more matters, more people, and ultimately mo’ money.
What clients are looking at now is not just what law firms charge hourly. They are looking at work that recurs, and asking why this should be charged at a premium. Because if work recurs, by definition it’s more in the ordinary course. And if that’s the case, it’s time to look at a process, and see if it can be improved.
Law firms have never had an incentive to improve their processes; not doing so has been the foundation of their economic model. The general counsel community has understood this for awhile, and is now in the early stages of re-engineering how they will source and supervise outside legal services.
Continuity legal work will migrate away from the AmLaw 200 over time. It will never go back.
And for any law firm further down the pyramid, work that recurs will have to be priced to market, and re-earned every month by showing some productivity gains over time.
But I can hear some of the AmLaw 200 (those not in the top 23 in terms of profits, for example), saying:
“Value pricing! Have you heard about value pricing?”
Sorry, Virginia. Value pricing is a nice concept, a great cocktail party topic, and makes for superb seminars. But it’s not the answer. It may not even be the question.
Tomorrow, Rule 5: The Value Pricing Mirage.