Lexpert Magazine

LEXPERT MAGAZINE | MAY 2018 59 the narrative of "value," spearheaded by the Association of Corporate Counsel's Value Challenge. "e word 'value' did not exist in the lexicon of the legal industry prior to 2008," Johansen says. But, as originally conceived, AFAs didn't do the job. "From the client's perspective, AFAs just ended up in what amounted to discounts and did not reduce total costs," Johansen says. "From the firm's perspec- tive, the industry's biggest regret is that they gave out discounts too easily without getting anything in return." Perhaps because law firms' profit margins tend to be high, it took some time for many to tweak to the fact that a 10 per cent dis- count amounted to a 30 per cent profit loss. "What was needed were more unique alternatives, and that's where pricing pro- fessionals started making headway at law firms," Johansen says. Johansen, who tracks the number of law firm pricing professionals in the industry on his blog, Law Firm Pricing (formerly Patrick on Pricing), found only 15 such in- dividuals working at law firms before 2010. Since, the numbers working in the field have increased from 33 in 2010 to 264 in 2017. Most are lawyers or others trained in business or economics. Much of the growth has occurred in re- cent years. e average number of pricing professionals at law firms between 2013 and 2017 grew at a rate of just over 40 annually, well above the average of 22 be- tween 2010 and 2013. What makes this growth even more significant is that, with some exceptions, Johansen tracks only individuals who have the word "pricing" or "client value analyst" in their title. at leaves out the numerous "financial analysts" of some ilk employed by law firms, whether they focus or par- ticipate in the pricing process or not. "e economic discipline of pricing has its own unique role and function," Johansen says. "If an individual's title doesn't reference pricing, that's likely not their main job, but I do try to include people who work on pricing at least half the time." A true pricing professional has a complex role that includes a thorough understand- ing of the law firm's finances, including the nature of the fee earners and their cost to the firm and the cost of the various services the firm wants to provide. "Pricing profes- sionals should understand clients' needs," Johansen says. "In the pricing world we have something called 'willingness to pay,' which drives pricing strategy by client, by product and by industry. We're not there yet with regard to legal services, but it is important that the pricing professional un- derstand what the client's motivation is in a particular matter." According to Johansen, the ideal pric- ing professional is as good with words as she is with numbers. "In a perfect world, pricing professionals should understand price negotiations and be able to com- municate the value and savings a proposal represents to both the client and the firm," he says. "Some 80 per cent of pricing pro- fessionals are accountants or have back- PATRICK JOHANSEN In a perfect world, pricing professionals should understand price negotiations and be able to communicate the value and savings a proposal represents to both the client and the firm. Some 80 per cent of pricing professionals are accountants or have backgrounds in finance or economics, but having the ability to communicate value gives them an extra dimension that will help with a law firm's profitability. | IN-HOUSE ADVISOR: EVOLVING FEE ARRANGEMENTS |

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