Legal & Professional services:: re-connecting pricing to cost, profit & value
Tuesday, 2 October, 2012 Leave a comment
Whilst the article from which this extract is taken relates specifically to the legal profession, the truth of the matter is that this isn’t just an issue for lawyers…it’s a fact of life, the new norm for service industries!
The graphic on the right was aimed at Insurance Brokers but these are common issues.
I remember some of my earliest Economics lessons dealing with “elasticity of supply and demand”. We are now in the trough that, inevitably, followed an artificially prolonged series of peaks. As a result, the ‘Supply’ created to serve in the good times, when the revenue was there to sustain it, is now a surplus (excess capacity). The market has contracted, demand or, at least, budgets have fallen. Value and cost is under close scrutiny.
Suddenly “how well you know your client” is back at the top of the agenda. So are a few other questions:
Working with or competing for; collaboration or competition; value or price; invest or spend; quality or quantity; win/win or win/lose; long term or short; strategy or tactics; moving forward or looking back???
Which do you have: client relationship or transactions?
RESILIENT: Smart, focused, business leaders will have already identified the clients who value the advice and service you provide. Those with whom a mutual bond is formed: a trust that exists at more than one level and upon whose loyalty (all things being equal!) you can rely…and vice versa.
FRAGILE: Of course, there will always be those customers who, in good times or bad, are loyal only to price and will remain so: but if you know your client you will have learnt NOT to rely upon them and the income they generate for your survival.
UNCERTAIN: Otherwise you may just have to rely (like UK banks) on client inertia or fear of change. Not much of a strategy.
The answer, for too many acolytes of the prevailing culture, is to sell more…but look where that approach has brought us! For genuine leaders, the solution should be to (re)invigorate relationships by asking and listening to what clients need: embrace and deploy the tools that enable you to serve better.
“Times have changed: it’s no surprise that firms were able to profit in spite of their lack of focus on standard business principles—in a world where you can dictate prices and where clients are either ill-equipped to manage them or uninterested in controlling costs, firms didn’t have to base their prices on the cost of producing the service or product.” And they didn’t have to worry that their competition would undercut the market or that their client would shop for other alternatives.
Given the increasingly competitive and tight economics of legal practice today, even in (especially in) the largest and most traditionally successful firms, the market has changed. Price can no longer be disconnected from cost, just as cost can’t be disconnected from value provided.