Practice Management

RainToday Report: 76% of Law Firms Discount Fees

By Brian J. Ritchey

Pricing has been a frequent topic at More Partner Income.  Some past topics include the science behind pricing, the ill effects of inflation on pricing, pricing management, and discounting.

RainToday has recently released the Fees & Pricing Benchmark Report:  Law Firm & Legal Services Industry 2008.  David Maister wrote a blog post on a similar report released by RainToday focused on the consulting industry on April 28th.  There were some striking similarities between the two reports:

• 65% of consulting firms reported they discounted fees.  76% of law firms reported discounting fees;
• Average discount of responding consulting firms was 11.7%.  Average discount of responding law firms was 9.9%.

Of the two pre-bill adjustments (mark downs and discounts), discounting is the most difficult to change.  Both show weakness in the firm, but discounting creates a feeling of entitlement from clients.  How?

Marking down time tells your client one of several things (the below is not exhaustive):

• I spent more time than I can reasonably charge you for the service provided:  ie, I am not efficiently working the matter;
• My associates spent more time that I can reasonably charge you for the service provided:  ie, my firm has less competent attorneys working on your case or I have inefficient staff working on your case;
• Even though I spent an adequate amount of time on this, it "seems" too high to me:  ie, I am unclear on the value of my service.

All of the above are correctable.  They are entry-specific adjustments that can be seen as temporary.

On the other hand, discounts are typically applied to the entire bill.  This gives rise to expectations of entitilement.  They can tell your clients one very negative thing:  I am overcharging you up front and adjusting it on the back-end. 

Just as discussed on this site in the post Discounting At Law Firms, the RainToday report suggests that there may be valid reasons to discount, but only when the discount is intentional, strategic, and, ultimately, mutually beneficial to you and your client.

Some reasons to discount given in the report include well-funded start-up clients (in expectation of long-term payoffs) and absorbing the cost of training new associates.  It is also something to consider when trying to win RFPs, in exchange for quick payment of invoices or in return for a threshold amount of work that the client will provide to the firm.

The important part of discounting is that it is mutually beneficial to you and your client - there needs to be consideration for the discount.  It needs to be binding so that if the client does not perform on their end, the discount doesn't get applied.  If there isn't quid pro quo, you are giving a clear message to your client that you overcharge up front - and that your rates are open to negotiation.  

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• What Law Firm Partners Need To Agree About
• Take Advantage of Competition to Lower Law Firm Communication Expense
• Survey Targets Business Development In Law Firms

Full post as published by More Partner Income on June 06, 2008 (boomark / email).