Pricing Matters: Using AI to Deliver Higher Profit and Better Client Value

08
Mar
2021

Jill Nelson

Recent research has shown that professional services firms face a variety of pressures surrounding pricing, competition, and client expectations. In the 2020 Law Department Operations Survey, 75% of respondents revealed their companies are actively trying to save costs by bringing more work in house. The recent Legal Pricing and Project Management (LPPM) Survey also pointed to a client-driven innovation trend, with firms implementing new processes for budgeting, proposals, and fee arrangements driven by the LPPM function and partner-led change management.

As the competitive landscape changes, firms need to be more creative in providing and communicating value to clients as a means to secure new engagements. At the same time, firms need to hit profitability targets while keeping clients satisfied.”

This means firm leaders must take a more sophisticated, analytical, and data-driven approach to pivotal strategic decisions around profitability and client development efforts. By improving processes and investing in AI-enabled software, firms can deliver better service to current clients and also analyze various factors to determine whether to take on new clients and matters.

Expert Pricing with AI-Derived Historic Insights

When it comes to pricing, firms must ensure that prices accurately reflect both the client’s goals as well as the firm’s profitability margins. However, this can be extremely difficult to do when based on previous matters, spreadsheets, or rough estimates. New, AI-enabled software supports pricing and LPPM efforts, including alternative fee arrangement (AFA) effectiveness, innovation, profitability, staffing, and matter components.

Firms with sophisticated LPPM approaches can also use AI-powered software to develop AFA strategies and conduct analysis that continuously identifies opportunities for improvement and innovation. They can leverage reliable insights on how long litigation is going to take, or what the risk and reward might be for filing in one jurisdiction versus another, and then collaborate with their clients on the best strategy for the engagement.

Winning Higher-Margin Business

Historically, firms focused on revenue generation rather than profitability, largely because they lacked visibility into actual costs. With advanced technology, firms can help service teams manage across the entire matter lifecycle, monitoring actuals against budget. This is critical as more clients are asking firms to manage a budget, and expect their firms meet that projected expenses.

Using integrated dynamic modeling, firms can scope various pricing, staffing, and resourcing scenarios, and assess the impact on the bottom line. From there, firms can forecast the anticipated revenue and profit margin on the engagement or portfolio of services.

Leveraging Technology to Build New Opportunities

• When determining whether to take on new clients and matters, firms must consider numerous factors, including:
• Does the new business align with the firm’s legal service area goals? 
• Does the firm understand the client objectives, guidelines, value drivers, and success metrics?
• Does the firm want to grow the client relationship, given prior financial performance, practice capability, and risk concerns?
• Can the firm satisfy the client’s OCG requirements (e.g., Coca-Cola’s requirement to have at least 30% diverse relationship partners at its most-used firms)?  

AI-enabled software provides insights into matter budgets and trends as well as historic milestones, allowing firms to accurately price matters and develop profitable pricing strategies. Software-derived insights can also help firms select the best-suited service team for a particular matter.

By analyzing a comprehensive dataset built from team experience, matter history, and other relevant and adjacent data, AI-powered solutions give lawyers, business development, and pricing teams insights into similar matters. Comparing client engagement across practices can inform business development strategies to expand client relationships.

Facing rapidly growing demands for agility and responsiveness from both internal and external sources, firms must not only collect accurate data but also apply intelligent insights to their client development strategies. Firms that invest in AI-driven software — and fully deploy the software to analyze past, current, and potential matters — will find themselves better positioned for future success.