28 January 2016

Which is better for clients: a price discount or accurate, transparent pricing?

Insights

More and more clients are asking for discounts from law firms, according to a recent article by Keith Dugdale in Beaton Research + Consulting’s highly regarded blog. This scenario seems to reflect the “more for less” approach that companies have been forced to adopt since 2008, and Dugdale argues that law firms should never give a discount when asked, even by long-term clients.

What’s Dugdale’s solution to avoiding offering a price discount, a move that he considers to be a race to the bottom? It is to offer the client something free. That suggestion might meet the needs of the law firm; however, it is hardly client-centric. Nor does it allow for a deep and meaningful discussion with the client about what they are really wanting when they ask for the price discount.

Our conversations with numerous general counsels in Australia and overseas indicate that asking for and getting a price discount really does not solve a client’s challenges – which really, at the end of the day, boil down to being able to control and justify their legal spend. More than that, receiving a price discount does not actually mean that the legal spend is less.

Why are companies asking for pricing discounts and why does it not help them keep their legal spend down?

Discounts have become important for clients whose procurement function has become involved in seeking legal services. The procurement function will satisfy their KPIs if they can demonstrate a saving for their company, such as choosing a law firm that offers a 40 per cent discount over a firm that offers clear pricing with no discount. Even though the discounted rate may be the same as the non-discounted rate, procurement is incentivised to choose the one that reflects a bigger saving. Unfortunately, it is these types of procurement practices that are forcing law firms to “discount”.

So companies are trying to get more for less by asking for a discounted price – which may not actually be getting them “more”. But surely it is getting them a lower price?

Apparently not. What we have found from speaking with numerous general counsels and lawyers is that, even after companies agree on a price, instead of getting a cheaper price overall some law firms cite “out-of-scope” extras and recoup all the discounted fee, plus more. This is not a sustainable situation for law firms as it damages their brand image and client satisfaction, and it is certainly not sustainable for companies as they become increasingly frustrated.

And it’s not just companies that are losing out. Law firms that lose work in such competitive tenders, despite quoting a lower price than the price ultimately charged to the client, are also frustrated.

Our suggestion is that when a client requests a price discount, the law firm should ensure they get a real understanding of the core desire that underlies that request. It is likely that what the company really wants is visibility and accuracy over their legal spend so they can control their budget. It might be more beneficial for the law firm to focus on providing accurate, transparent pricing at the beginning of a matter and, throughout the entire matter, charging what is agreed while remaining commercially oriented and client-focused in their approach.

The key issue for law firms is how they can deliver this consistently and accurately. And that’s where Lawcadia comes in: we aim to support both client’s and law firms through providing a simple financial reporting tool that delivers accurate reporting over the past, current and future legal fees for each matter.

Ultimately, if companies can get complete transparency over their legal spend, even on complex matters, it will be a significantly better legal market.

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