Totum’s recent report, Developments in the Legal Pricing Function, featured an in-depth Q&A with Stuart Dodds, who was one of the first Pricing Directors in the legal sector. We reproduce that Q&A here, in which he shares his views on the changing pricing landscape.
Stuart Dodds is Co-founder and Principal of Positive Pricing. He was one of the first and longest serving pricing and LPM directors in the industry, working firstly with Linklaters and then Baker McKenzie having previously been a Management Consultant for 18 years. Since co-founding Positive Pricing in 2018, he has subsequently worked with over 50 leading professional services firms.
What are the chief changes that you have seen in pricing functions in the legal sector in recent years?
Many firms are still looking to develop a pricing function while others are increasing the size and impact of their teams, recognising the contribution pricing teams have made to good financial results through the pandemic – it was a bit of an epiphany moment. There’s also much more awareness of the influence of senior people in pricing, reflected in the number of roles that have Chief in their titles – those now incorporating titles such as Chief Pricing Officer or Chief Commercial Officer. Finally, I am also seeing a greater shift to product and solutions based pricing now and expect this trend to continue.
What are the key success factors for setting up a pricing team?
Visible senior executive sponsorship is key – pricing has to be championed from the top. Who you bring into the pricing role is key too. It is important to have very strong change management skills throughout the pricing function – because you’re getting people to change their behaviours – and entrepreneurialism, taking knowledge and techniques from other industries.
Analytical skills, making data meaningful, learning from mistakes and using technology to help in your pricing role are also important in helping the firm deliver services to clients.
Many pricing teams start out from teams of one or two, but a lot of teams are now as big as nine/ten or even 20 people. The challenge is to make sure that you’re recruiting and retaining those with strong people management skills (or with whom you can help develop these skills) – who can manage the additional challenges of hybrid working where team members will often be working alone.
There seems to be a push to deliver a more commercial side to pricing functions. What does this mean for the development of the pricing function?
I’ve seen pricing functions move from operations/transactions to a strategic level. In some firms, there may be a team of six or seven managing all the rates of all of the arrangements they have with clients. But in others, pricing has become much more strategic and commercial. And those teams might not want the noise of the transactional arrangements, which require a different mindset and skillset.
It’s about changing pricing from a primarily finance-based function to one that is more business development and sales aligned and some firms may not be comfortable with that. Many pricing people don’t necessarily understand the technical aspects of law (and that isn’t the main focus of their role anyway) but they DO understand the importance of value and making sure work is appropriately profitable. That’s going to be important as firms start to work out the nature of legal services, when it’s not by-the-hour arrangements but delivering legal solutions or highly complex matters instead.
In that context, there will be a rise in commercial roles. However, this rise will be tempered by the ability to source enough people with the right experience. Not everyone can do it – it requires a huge amalgam of skills – from a skills perspective it has become the new pricing ‘unicorn’.
What is the role of a Commercial Director?
The commercial role is always looking to what can be brought together and optimised out, whether by using technology or delivering solutions in a different way that also delivers an appropriate profit. It can span client selection, through client onboarding, through to delivery of matters and (potentially) exiting from certain client relationships, to name but a few of its elements. And that’s a pretty challenging role especially when you have strong-minded partners who may not be willing to accept that elements of what they do can be made to be more packaged or repeatable in nature (no lawyer likes to feel ‘commoditised’)…
This commercial role won’t work for every law firm – it will be driven by pricing function maturity, those in the pricing role themselves and, importantly, the underlying firm culture. But for those firms where the ‘right combination’ of factors exists, there are significant opportunities in improving underlying financial performance, delivery efficiency and client satisfaction.
What is the link between pricing and legal project management (LPM)?
I have managed pricing and LPM. When we talk about pricing we talk about a process, it’s what we receive in exchange for our services. It’s not just what the price is at the beginning, it’s what we get at the end. Pricing delivery is therefore very important – and it’s that which links LPM and pricing whether they’re separate functions or combined.
But there is a difference. Pricing in terms of costing can be thought of as who’s going to be doing the work, how long it’s going to take, what is the budget, and what do we manage against? But then pricing moves to a more strategic level: what is the market telling us, what does the client value? If an LPM is coming up with the budget and work plan etc, they might share that with the pricing team and ask if that changes the way they would approach a matter. LPM can often be more detailed in focus and transactional in nature, whereas pricing is often more strategic and relationship based, but they have to work well together.
I don’t’ see pricing and LPM roles directly linked as much these days – they’re typically team mates. Often they come together as part of a Legal Operations Team or similar. But by building and developing very rounded skills, they can flip between their roles quite often and they need to understand what each other does very well.
What do firms chiefly get wrong in their pricing functions?
The first thing they get wrong is not having clear sponsorship, which drives stronger visibility and engagement of the function and can help support quick wins. And then it’s not having a clear plan of what you want to do. You need a road map or direction of travel even if the plan changes over time.
As pricing teams have become more valued, they can also be in danger of getting sucked into day-to-day tasks, which means they can get diverted from the transformational goals that can really impact a firm for the better.
Expectation management is also key – how much can a team do and what should they prioritise? A pricing team may spend as much time pricing a small deal as a large one. This doesn’t mean they shouldn’t focus on smaller deals, because they might all add up. But they need to consider where to allocate scarce resources to have maximum impact on the firm.
What trends do you see for the future of pricing functions?
Pricing teams are going to increase their influence – and have much greater focus on technology when pricing and managing a matter, and in how to more effectively integrate technical solutions in the delivery of legal solutions (and be paid appropriately for this efficiency).
A pricing function might not be right for every firm – for example, smaller firms may find the investment required to bring these skills in house on a full-time basis challenging; developing the skills of partners and fee earners through external training may be a more cost-effective approach.
But for any business of any size you need to have someone who can drive your approach to pricing rather than making it a responsibility for everyone, which ultimately means that no-one is responsible.
This Q&A featured as part of a larger report on pricing, including a detailed pricing survey analysis and other interviews. If you would like to receive a PDF copy of the full report ‘Developments in the legal pricing function: Totum report 2022’, please contact [email protected]