This article was first published in Managing Partner in March 2013 and is reproduced by kind permission.(


Centralising Pricing

It is now well established that pricing is an ongoing challenge for the legal industry. Amongst all the talk of “the death of the hourly rate”, and “value pricing” relatively little attention has been paid to the value of good process and governance in pricing.

In this article we will look at the benefits and challenges of applying some central control and robust procedure to improve success rates and margin. We are already seeing some firms establish “Head of Pricing” roles, not just here but also in the US and Australia. This is likely to be an increasing trend as clients become ever more sophisticated buyers. But what are the real pros and cons behind this centralisation, and how can it be made to work in a devolved structure such as a partnership?

The Market context

The legal market, as we all know, has declined markedly since 2007. Even now, there is still considerable spare capacity and this is manifesting itself in a continuing series of redundancies and indeed some law firm failures. Meanwhile successful law firms are merging, absorbing new teams and taking market share from those who are failing. This process is likely to continue until such time as supply and demand come into balance.

With excess capacity chasing a limited amount of work prices have fallen. Clients, under their own cost pressures and reduction in demand for their own services are focused on reducing spend, looking for “more for less”. They are very effectively exploiting the competitive legal market to wring savings out of their legal budgets.

 All is not lost, however. Survey evidence shows that “low price” is not always top of clients’ wishlists, although “value for money” usually is). Also, despite all the upheaval, surveys also show clients relatively reluctant to change legal suppliers providing they can get a good deal with their existing one.

The effect is uneven across legal markets with some service lines suffering much more than others, while a few are booming. Effective hourly rates between different practices within the same firm can, as a result, vary by as much as 2:1 or even more, setting up internal tensions and complicating the pricing decision considerably – especially on multi-disciplinary tenders.

The disruption in the market brought about by the recession is “stirring the pot” and there will (and already are) winners and losers. So, what marks out the winners? Clearly, one factor is an effective approach to pricing enabling them to gain work, clients and profits.


The case for centralising

Traditionally, many law firms have left pricing to the partners, relying on the pressure of fee income targets or careful challenge of recovery rates to ensure effective compliance. This was fine in an environment where relatively uniform hourly rates applied and there was sufficient work to go round.

 In practice this model encouraged partners to stick to a tried and tested formula – hourly rates – and discouraged deviation from the Firm’s rate card. Pricing was simple. Few questions were asked internally if recovery was good, and clients accepted the status quo, knowing that there would be little to be gained – price-wise – by moving work around. The whole arrangement led to a lack of innovation and a reluctance to move away from simple certainties.

Clearly, in the current environment, the effects of supply and demand, and a more active client base has undermined this model. Partners in some service line have found prices move so far from the standard firm rates to render that standard irrelevant, while others have been able to gain premiums. Something much more flexible and nimble is clearly required.

Contrast this with our clients’ approach to pricing which is often based on a good deal of science and hard data. The price of airline tickets can change hourly; supermarkets put in place special offers and multi-buys on a weekly basis. There are many more examples. We would like to emulate (at least some of) this innovation in our pricing too. While these specific methods may not be appropriate, the approach by which these organisations set their pricing is instructive. Some key themes are:

1.       Clear understanding of their client’s requirements (even though in many cases the individual cannot be identified) – just listen to one of the supermarket heads describe shoppers’ buying patterns and how they have responded.

2.       Data to identify optimum profitability – as a trade off between volume and price. Lower prices does not necessarily mean lower profit; higher prices could mean no work!

3.       Flexibility and nimbleness to change pricing when conditions change

4.       Pricing models determined by teams drawing on the best skills to make the decision

5.       Preparedness to experiment with new approaches – and modify them when they don’t work

6.       Separation of pricing from cost of product

If we are to achieve even some of these objectives, some form of centralised pricing function is a must as no individual partner can ever hope to achieve this level of knowledge along with the job.

However, introducing centralised decision-making functions has always been difficult in professional services.

Why is this difficult for law firms?

Such “corporate” level management of key decisions such as pricing is difficult for any professional services firm, but seems particularly challenging for Legal.

Partnerships (of any flavour) represent the coming together of a number of individuals, each owners, because they perceive that working together will be more effective than working individually. Despite this, each owner retains a significant degree of autonomy over management of their practice. This can vary significantly from the “managed law firm” model through to some practices where each partner is individually responsible for all aspects of their business, simply sharing facilities – like a traditional barristers’ chambers. However, even in the most managed of law firms the degree of responsibility on an individual partner has few parallels in corporate structures.

Additionally, law firms often manage partner performance with a series of hard measures ranging from cash collected through to income. These incentivise lawyers to operate independently. Price setting is merely a means to achieving partner performance statistics.  In contrast, pricing in corporates is usually determined and managed by specialists dedicated to the task and responsible to senior management for review of their work.

The degree to which lawyers, however, are expected to manage their own practices, either individually or as small teams means that they are typically reluctant to engage with a centralised pricing unit for fear of being in some way constrained or hobbled in achieving their main performance targets. The task of a centralised unit or person therefore in achieving the credibility needed to be able to engage with partners is considerable. Further, reaching a point where that centralised unit is able have the “final say” on pricing is perhaps beyond the reach of many managing partners! It can, however, be done.

How you can do it

There are some simple strategies which can be deployed in order to assist the process of introducing some form of centralised pricing structure:

1.       It is a 2-way process. Ensure that in each interaction the partner benefits from others’ experiences and also contributes to the firm’s knowledge base. This reinforces one of the salient benefits of centralised function.

2.       It is a collaboration. The agreed pricing approach should be just that – a combination of the pricing function’s experience with that of the partner’s specific knowledge.

3.       Get in there early. Find ways to engage in discussion before conversations with the client are too advanced – otherwise the opportunity for manoeuvre will be much reduced.

4.       Be empowered. This is the greatest challenge of all in the establishment of centralised pricing and it is essential that partners both see the value of centralised pricing and also understand it is not optional.

Inevitably, within a large group of individuals, there will be some who readily embrace the new approach, some who will stubbornly continue in their current track, and many in between. A key balance to strike is to maximise uptake and engagement while accommodating all styles.

Finally none of the above will work without content – the central pricing function must be credible. In particular the pricing function needs to understand the relevant service lines, have credible market intelligence on pricing and be able to come up with innovative solutions. Those potential solutions must be credible in each situation and therefore deep knowledge of the pros and cons of different models is required.

Beware the siren voices.

One key advantage of a centralised pricing approach, beside the operational benefits set out above, is the ability to avoid the overly simplistic solutions that are often touted as the “answer” to the legal pricing conundrum.

As firms look for solutions to the hourly rate debate, it is easy to reach for “headline” solutions which quickly prove impractical. The benefit of such a “headline” is some publicity, and no need to implement any centralised operation internally. On a day-by-day basis however, this will either constrain your business, or you will find yourself still left seeking solutions to all those situations where your preferred approach will not work.

 We will discuss alternative fee models in a future article but briefly here are two examples which can catch out the unwary.

1.       Fixed fees. Contrary to those who see fixed fees as the future, I think of fixed fees as the norm and therefore not really an “alternative” model. In many legal contexts fixed fees in some form or other are already the most common charging mechanism either formally or informally. If you are not doing it already, you are behind the pack!! There are many circumstances though where as a client I would not want a fixed fee because of the risk profile it creates. In any event, do those who propose fixed fees as a solution to pricing really think we will look innovative to our clients?


2.       Value Pricing. As a theoretical concept, value pricing seems appealing and there are those pushing this model hard to law firms. The concept’s great strength is getting lawyers to think about what the client is seeking to achieve. However, in practice it can only be applied in a very limited number of circumstances without risking damage to the law firm. Even in those situations there is additional overhead in management of value pricing.

Clearly, a centralised pricing function enables a case-by-case, or client-by-client discussion on pricing if that is appropriate. This is entirely consistent with the principles of key account management which requires a deep understanding of the client’s situation and needs so that the law firm can tailor its solution to meet the exact requirement of that client situation. It is natural that the commercial arrangements between law firm and client reflect this and are tailored to the situation.


In a very fluid and challenging environment the difficult area of pricing is one where firms clearly need to put their best foot forward in order to protect and grow their business. The landscape is changing and those who are able to deliver in their commercial arrangements what clients are really seeking will succeed. I think it is an area too complex not to have some form of centralised support.



Considering a centralised pricing approach

If you are considering some sort of centralised pricing function, review the following and award points to each for how well you score (1-5), where 1 = don’t know, 5 = I have an accurate picture with detail. Remember, the scoring is for how well you know the data, not how good or bad the result is (if you know it). :

Do you know:                                                                                                                                    Your score          

1         How many of your matters are:        

a.       Hourly rates                                                               }

b.      Fixed Fee                                                                    }

c.       Alternative Fee arrangements                           }                                                              5pts



2         What percentage of your pitches does your firm win?

                Of those lost, what percentage are lost because of commercial terms?                  5 pts

3         What proportion of your matters achieve a premium

-          How many could have achieved a premium?                                                                               5 pts


4         What proportion of leads are turned down because you think you can’t offer a competitive price? Of these:

a.       How many are turned down by partners in the first instance

b.      How many are turned down after scoping and costing                                    5 pts



There are a maximum of 20 points:


0-8 points            Terrible! No firmwide understanding of how you are doing. Just how much extra wok could you be winning?


8-13 points          Typical. You have a broad picture of performance but many opportunities are slipping under your nose. Enhanced centralisation of pricing would certainly assist.


14  points             You must have centralised pricing already! Are all your partners making good use of it and how are you going to get the knowledge out to them?


By Chris Howe

Chris Howe is a Director at Raedbora Consulting Ltd