Firms Begin to Eye Pricing Analysis

, The Legal Intelligencer

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When looking at the cost of different Pepper Hamilton services, Secor said he will determine whether the cost and pricing model fit within the firm's current portfolio. For example, Pepper Hamilton may have too many ongoing matters at one time that are done on a capped-fee basis, so a new matter should be priced in a different way. And sometimes firms will take on work at a loss in order to get future, more lucrative business. Secor's group will be tasked with tracking all of that to ensure the firm's overall portfolio is profitable.

Reed Smith has had a pricing department for nearly three years and a legal project management group for about a year-and-a-half. The firm is expanding the staffing of both and is about to join the two under one umbrella that will report to a newly created position of global director of client value. That position will report to Baldwin.

The pricing team currently has three analysts with another on the way. The group will also soon get a manager of strategic pricing. Baldwin said the firm has been calculated in its hiring, bringing on seasoned financial analysts as well as investing in building technology to mine the data it tracks.

"It takes time to build up enough matters across a wide swath of practice areas to be able to use it consistently," Baldwin said of tracking pricing data.

Along with helping partners firm up their fee arrangements, Baldwin said his team has become increasingly involved with assisting partners on large RFPs and in reverse online auctions in which decisions on pricing cuts must be made in seconds.

Reed Smith doesn't have a policy on what matters must go through a pricing or project management analysis. Baldwin said seven-figure matters or matters in which the firm is pricing out a portfolio of work are those his group most typically handles.

The portfolio deals are where necessity of the marriage of pricing and project management is most prevalent, Baldwin said. Firms can have the best pricing in the world, but if they don't monitor and manage how that plays out over a matter, the firm or the client could run into trouble, he said.

Baldwin said Reed Smith put the pricing and project management functions under the firm's knowledge management department because that department can bring added value such as analyzing project process maps to determine where process automation or legal technology could be inserted to make the matter run more smoothly.

Internal First

At Dechert, the first pitch on pricing is focused internally. A senior director runs a three-person team of pricing analysts who work with the firm's attorneys on crafting alternative fee arrangements. Those arrangements then go to Chief Financial Officer Anthony Licata who either approves them or decides to kick them up to a partner committee for approval. The matters have to meet the firm's profitability models or there needs to be a reason for taking a matter on a basis that doesn't meet those models.

"If we're going to do 20 to 25 percent of our business on something other than the billable hour, it's no longer responsible to guess," Licata said. "There needs to be sophisticated financial modeling."

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