Legal Services in Mature Markets

Author: Richard Stock - Lexpert (May 2005 at p. 105)

The amount of legal work available to law firms in a given market is “elastic”. Try telling that to a senior associate or to a partner under pressure to build a practice or to top off a practice that has been at 75 % capacity for 3 years.

The symptoms are easily recognizable, often for lawyers with commercial practices targeting medium-sized and smaller business. Many such businesses have closed down or been sold off. Sometimes, the owners have changed law firms looking to find specialists not available at the original firm. It seems that “loyalty” goes only so far.

Moreover, the corporate and institutional sectors, as well as government at all levels, have launched programs to reduce the number of firms that they use. Strategic procurement initiatives can be found everywhere and they have reached legal services. Only the strongest personal and professional relationships between the client and the firm survive the pressure to reduce the number of firms, reduce and stabilize pricing and realign legal service teams so that they are properly leveraged.

The challenge to law firms in mature markets is spreading to every area of practice. But there are measures every experienced professional can take in response.

1° Know Your Client's Business

Not enough lawyers take the time to learn what the business plans are for their clients. Outside of the particular matter or case, they lack the bigger picture. Competitive markets for a client’s products and services, regulatory issues, and turnover of the executive team will force a review of legal service usage patterns. Every lawyer interested in building a long-term relationship should know what is going on with key clients aside from the specifics of the legal issues at hand.

2° Performance Drivers

Expertise for 90 % of all legal work in a reference market is typically available from five other firms. Firm conflicts, or the unique experience of a given partner, account for part of the other 10%. Strong relationships with clients are built on service, and service depends on turnaround or speed. The firm that promises tight turnaround and always beats the deadline comes out ahead of the firm that does the work just in time. Assuming that expertise on a file is equal, then superlative turnaround / service will support a 10 - 20 % price difference between competitors.

3° Cost Reduction

A few firms have recently launched cost reduction programs. However, firms have not re-examined their business model since the early 1990’s. Very little about cost reduction in law firms is about finding examples of waste. Instead, it is about doing business differently when it comes to the use of space, support staff and associates.

There is evidence that firms can reduce their undiscounted weighted rates by $100 - $150 per hour by introducing fundamental changes to the mix of associates, paralegal employees and other staff. Savings approaching this order of magnitude can be shared with clients as part of competitive pricing strategy.

4° The Client and the File

Sometimes, it’s a choice between being focused on the big picture – the long term sustainability of the firm and the practice group, or on an individual practice. Too many firms are notoriously poor at cross-selling, or even at asking clients for more work of the same type. Finding just enough work to fill the remaining 150 hours a practice needs to hit targets is missing the mark. The goal is to find a growing volume of quality work from one’s top 25 clients and then ensuring that it is passed on to one’s partners, associates and paralegals.

It takes a bit of research to find out the proportion of all legal work a firm is doing for a client in a reference market, and then to find out who else is providing legal services to your clients and the type and volume of work they are delivering. Firms need to target their top 25 clients and adopt measures to become the dominant provider of all legal services to the client. They then need to nail down multi-year partnering agreements. This takes a lot of work and it is essential in a mature market.