A new industry report out today (7 March) finds that clients are increasingly demanding financial transparency and certainty across their engagements with law firms as they look to alleviate their cost pressures in light of the current economic uncertainty. Almost half of the law firm respondents reported an increase in demand for alternative fee arrangements (AFAs).
BigHand collected over 800 responses from senior legal finance heads, managing partners, legal project management and finance systems leaders from law firms of 100+ lawyers in the UK and North America.
Key findings from the report include:
- Half of firms (54% of North American firms and 45% of UK firms) report an increase in demand for real-time financial updates for matters.
- Only 1.5% of NA and 3.2% of UK firms are providing updates on every matter.
- 46% of firms confirming a rise in demand for AFAs this year.
- Profitability data is available to just 22% of NA, 19% of UK Partners and only 17% of NA, 20% of UK Associates.
- 70% of NA, 67% of UK firms plan to invest in budgeting tools to help with financial planning and forecasting in the next two years and 72% of NA, 66% of UK firms plan to invest in legal pricing solutions.
The report shows the increasing issues firms face with evolving client expectations for greater matter visibility and flexible pricing.
The role of pricing teams has changed over the years, evolving from the design of
different pricing structures, to owning the matter budget process, to participating in
client negotiations. 61% of NA and 56% of UK firms say the responsibilities of the
pricing function have grown in the past 12 months.
Investments in pricing teams and supporting pricing technology, although essential, should be coupled with process change that encourage their use, the report says. Furthermore, associates need data to support new commercial goals, however, access to billing (41% of NA, 39% of UK), profit (41% of NA, 36% of UK) and time (40% of NA, 37% of UK) information at matter level is still limited.
In terms of incentivisation to reduce profit leakage, BigHand observed a difference placed on the influence that matter budgets have in controlling profit leakage; in NA revenue directors (38% of NA and 13% of UK) and pricing directors (34% of NA and 20% of UK) viewed budgets as having an impact. However, as previously noted in the survey results, matters with a budget have on average a 10% increase in realization. “It is safe to assume matter budgets have an influence on profit and leakage,” the report says.
You can download the Improving Client Engagement to Safeguard Profitability report here