1. Pricing for African Law Firms
Rebirth Conference of the African Bar Association (AFBA)
6 September 2016, Harare (Zimbabwe)

2. So, how do you feel about pricing?
Source: Toby “3 Geeks and a law” blogger, Chief Practice Officer at Akin Gump
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3. Agenda Global trends, local implications Pricing models
Pricing drivers
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4. Global Trends – local implications
Pricing
Global Trends – local implications

5. Demand for growth in Legal Services
Flat growth in 2015 but ...
year-to-date demand growth in Corporate and Real Estate Practices (~3%)
other practices experienced negative growth, incl. litigation and patent litigation (more than 30% of total work, ~-1%)
Source: Georgetown Law – Center for the Study of the Legal Profession, Peer Monitor 2016 Report on the State of the Legal Market (Thomson Reuters Peer Monitor data are based on reported results from 143 law firms, including 48 Am Law 100 firms, 42
Am Law 2nd 100 firms, and 53 additional midsize firms. “Demand for law firm services” is viewed as equivalent to total
billable hours recorded by firms during a specified period ending November)
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6. Drop in Realisation Rates
Drop in realisation rate not compensated by rate increases (anymore)
year-to-date demand growth in Corporate and Real Estate Practices (~3%)
other practices experienced negative growth, incl. litigation and patent litigation (more than 30% of total work, ~-1%)
Source: Georgetown Law – Center for the Study of the Legal Profession, Peer Monitor 2016 Report on the State of the Legal Market (Thomson Reuters Peer Monitor data are based on reported results from 143 law firms, including 48 Am Law 100 firms, 42 Am Law 2nd 100 firms, and 53 additional midsize firms. “Demand for law firm services” is viewed as equivalent to total billable hours recorded by firms during a specified period ending November)
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7. What Legal Departments look for
Top 5 Goals
Reduce outside counsel spend
Prove value to the business
Predict legal outcomes
Automate legal processes
Forecast legal budgets
Source: LexisNexis survey conducted 2 9 September – 10 October 2014; 95 US respondents
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8. Top challenges facing Legal Departments
Improve operational efficiency
Regulatory compliance
Budget pressure
Not enough staff
Make better use of technology
Source: LexisNexis survey conducted 29 September – 10 October 2014; 95 US respondents
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9. Change in Pricing Strategy
Slow uptake
31.1% changed their strategic approach vs. 94% (more price competition is permanent)
In support of strategy change: Gap betw. large and small firms (52.6% vs. 23.5%)
Source: Altman Weil, law Firms in Transition, 2015.
March and April 2015
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10. Support for Pricing Strategy
Top 5 activities
Collecting data
Training lawyers
Setting targets
Identifying client preferences
Incorporating pricing in plans
Source: Altman Weil, law Firms in Transition, March and April 2015
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11. Different instruction scenarios – same implications
Client
Global Law Firm
African Law Firm
Int’l Law Firm
Questions to ask yourself:
What do I need to do to win profitable instructions from a Client in terms of
“costs of delivery” (existing fixed costs, legal matter management and value-adds),
pricing and billing processes, and
positioning the firm as a whole (perceived quality)?
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12. It all comes down to three questions …
When bidding for new work, how do I set a price that is high enough to protect profits, but low enough to get the work?
Does my price reflect the value that I contribute?
After winning the work, how do I manage the matter so that I make a profit (or at least break even) at that price?
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13. Pricing
Pricing Models

14. Dimensions of Pricing Models
Degree of strategic alignment
Developmental Stage
Transfer of Risk
Quality of Relationship
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15. Developmental Stage vs. Transfer of Risk
Time-based
Hours recorded x hourly rate
Budget-based
Budgets and caps
Performance-based
Risk and reward
Value-based
No connection between costs and fees L
Transfer of Risk (Client to Law Firm)
Time-based
Hours recorded x hourly rate
Value-based
No connection between costs and fees
Budget-based
Budgets and caps
Performance-based
Risk and reward L
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16. Strength of Relationship vs. Degree of Strategic Alignment
Quality of Relationship (inhouse view)
Time-based
Hours recorded x hourly rate
Budget-based
Budgets and caps
Performance-based
Risk and reward
Value-based
No connection between costs and fees L
Degree of Strategic
Alignment
Time-based
Hours recorded x hourly rate
Budget-based
Budgets and caps
Performance-based
Risk and reward
Value-based
No connection between costs and fees L
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17. Performance-based Models
Contingency – based on firm’s performance or client’s success (option: partial contingency)
Holdback – milestone or result-based bonus as percentage of fee
Risk collar/adjustment clause – % above/below estimate (80/120)
Success – upward adjustment based on scorecards, etc.
Hybrids – combining budget and bonus components
Risk & Reward
To be considered:
Contingency: Based on a firm’s performance or client’s success constitutes pre-financing a matter, e.g. payment after Financial Close
Holdback: Law Firms have incentive to perform but success may not be easily attributable.
Risk Collar/Adjustment clauses/Bonus & Malus: Difficult to determine the causality. Typical for Private Equity transactions.             
Success/Bonus: Simple model often based on fixed or hourly rates. Client decides on the award.
Hybrid: Should maximise each party’s investment. Requires sophisticated time-and-billing systems and personnel to create and monitor the agreements.
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18. Beyond the hourly rate © Avuka Training and Coaching (Pty) Ltd 2016
Source: ABA Journal/Law by Numbers using data from Norton Rose Fulbright 2015 Litigation Trends Survey
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19. Pricing
Pricing Drivers

20. Which motives drive the client’s willingness to pay a certain price?
Speed of Resolution
Type of Outcome
Cash Flow Management
Predictability
Certainty
Setting Precedence
Source: Toby Brown (3 Geeks and Law Blog)

21. It is a paradigm shift …
Legendary Harvard Business School marketing professor Theodore Levitt famously noted, "People don't want to buy a quarter-inch drill. They want a quarter-inch hole! To that I add, “at a cost that’s worth the value of the hole to my company.” Rose D. Ors, founder and CEO of ClientSmart, former associate, General Counsel and BD Director at a law firm

22. The Relationship between Pricing, Billing and Value
Client Relationship
Value
Billing
Pricing
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23. Additional pricing considerations: non-billable, value - added services
Dedicated client team
Regular know-how updates (alerts, jour fixe presentations, etc.)
Free participation of your preferred legal service providers in your strategy sessions
Availability for benchmarking and knowledge sharing (e.g. IT, know how management, learning & development)
Use of conference and data room facilities
Use of library resources
Reverse secondments for training purposes
What are your experiences?
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25. Contact Details Follow Avuka: M: +27 (60) 500 1095
avuka-training-and-coaching-pty-ltd
@avuka_training
Ignaz Fuesgen, Mag (Vie), EMBA (Minn)
Founder and Director Avuka Training and Coaching
M: +27 (60)  E:
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