Many professional services firms are financially highly successful businesses.
But that doesn’t mean that they get their pricing right. Byline.London’s James Lumley finds out why many firms are leaving money on the table, and why partners may be the worst-placed people in the organisation to set prices.
Professional services firms are haemorrhaging cash. Not through bad work, lost clients or poor strategy. Through pricing. Or more precisely, through the absence of a coherent approach to it.
At a time when firms are investing heavily in technology, talent and business development, a critically important lever for profitability requires none of those things. All it requires is getting pricing right from the outset.
The scale of the problem is striking.
Recently, Shaun Jardine, founder of pricing consultancy Big Yellow Penguin, and an advocate of value-based pricing, ran a training session with members of pricing teams from some of the UK’s biggest law firms.
He’s long believed that law firms write off 10–20% of work in progress (WIP) a year. Even, he says, large firms with revenues over £40m.
But at that session, he was told that he was wrong.
“One told me that they wrote off 25% of their WIP,” he said. “I asked them what their turnover was, and it was £250m plus. Absolute madness. We book all this time, and then we discount it, or the client doesn’t pay.
It’s just bonkers.”
Twenty-five percent of £250m is not a marginal inefficacy. It’s a gaping wound that has been hiding in plain sight for years. It suggests that either pricing is broken, or firms are leaving millions of pounds on the table.
The truth, however, is a little more complex.
Dedication’s what you need
“Historically, the pricing function in law firms has been non-existent, or consisted of someone from finance telling partners how much they can discount by the hour and still remain profitable,” says Verity Jackson-Grant, head of commercial pricing at Fieldfisher.
The partner had the client relationship, the partner set the fee, and if the client pushed back the partner discounted. Nobody questioned whether the discount made commercial sense. And often it didn’t. And that’s before the annual WIP write-off necessary for accounting purposes.
That is changing. Dedicated pricing teams are now appearing across the larger firms, sitting variously in finance, business development or legal operations depending on the firm’s culture and priorities.
“At Simmons it sits under finance,” says Boaz Quartey, senior pricing manager at the law firm Simmons & Simmons. “It used to sit under marketing and business development, and then legal operations. But it doesn’t really matter where it sits. The right place depends on the firm and how it’s set up.”
What matters most is that it exists at all. And even if it doesn’t sit in marketing and business development, “there is an art to it,” says Quartey. “It is data related, but it is about thinking about how you sell prices to clients,” which is both a form of marketing and business development.
Even so, what does the pricing team do all day?
Jackson-Grant at Fieldfisher says that the partner-facing part of her role ranges from giving strategic advice to taking full charge of negotiations.
“Some partners want you behind the scenes but are happy for you to give them a script,” she says. “Some just want intel, and we are very happy to provide that. And we have some who don’t want to be anywhere near pricing, so they put us in touch with the client or their procurement team so we can negotiate without it affecting their business relationship.”
That allows the pricing specialist to ask questions the partner feels uncomfortable asking. They can benchmark against competitors, probe client budget cycles, and reframe the conversation away from hours toward outcomes.
What clients actually want
Sophisticated clients, particularly large corporates, have been wanting this sort of conversation for years. Quartey used to be at Meta where he negotiated from the other side, and, he says, they were not a fan of the billable hour.
For one thing, it didn’t align well with predicable budgets.
“Clients want to know the price,” he says. “At Meta, for example, they tried to move the conversation away from the actual number of hours it takes to what the work is worth to them, and what it is worth to the firm.”
His role at Simmons, he says, is to help encourage fee earners to move away from the “traditional hour conversation” towards more flexible and creative approaches.
The confidence gap
At the heart of the pricing problem is something that has nothing to do with systems or structures. It’s psychology.
“When you put a partner on the spot about pricing, you learn something interesting,” says Quartey.
“They are very confident in their actual work and expertise, but not so confident when it comes to prices. So, when a partner says they want to discount their rate by 50%, you need to ask them why, if they are doing their best work, they should discount the rate.”
The lesson, he says, is that you have to have conversations with partners to make sure they are comfortable with their hourly rate and are willing to stand by it.
Jackson-Grant is more direct. Most partners, she says, are “terrified” of their own hourly rate.
“It’s really interesting,” she says. “They don’t typically have the ego people expect them to have when it comes to talking about the value of the service they provide. And when it comes to talking about it, they hate it.”
Clients, however, do want to have those discussions, which strongly suggest that many partners are the worst people in the firm to be running negotiations.
And, says Jackson-Grant, pricing is not the same as nervous-reflux discounting.
“It’s not just the amount a client pays, it can be when and how,” says Jackson-Grant. “Or there may be a matter where the firm is prepared to take a risk. Or change the fee according to outcome.
“You can have these conversations,” she says. “You can use your pricing as a reason to talk to your client, understand more about them, move through that kind of transactional discussion of how much I’m going to be paid into the trusted advisor role.”
Firms can, she says, use pricing as a tool to change the client’s perceptions of them.
Watching the accountants
It is not just the lawyers who don’t like talking about money. Mary Flanagan, head of clients and strategic projects at accountancy firm Grant Thornton Australi, a has been running a five-year project changing the way the firm bills.
Accountants know that discounting hits profitability, yet even they feel obliged to discount too much.
“The basis of it was the partners felt discomfort at having those discussions because they feared it would damage their client relationship,” she says. “But I’ve done enough client listening to know that transparency about pricing can be a great way to build a relationship with a client.”
“It means you can sit on the same side of the desk and say ‘You want to work with us, we want to work with you. Let’s find something that is fair for both of us and make it happen.’”
Transparency as the fix
The good news is that the solution is neither complicated nor expensive. Flanagan is clear about what she thinks the fundamentals of good pricing are.
“At the very top level: transparency,” says Flanagan. “It’s a two-way conversation with the client. You’re looking for it to be fair to the client, and fair to us.
“Clients understand business imperatives. They understood that the cost of doing business is increasing. They know that sometimes projects can go off the rails. Flag it to them early and talk about it.
“Instead of leaving it to the last minute, keeping pricing as part of the conversation the whole way through the process, from the beginning of the bid through to the end of it, through to doing the work, to resubmitting a bid, and so on, so that you’re always talking about fees in an open and commercial way.”
What clients really cannot tolerate is the surprise bill that arrives after with no prior warning.
AI: pressure before progress
Artificial intelligence is changing the pricing conversation, but not yet in the way most firms expected. When AI fever hit the newspapers, clients started asking for discounts even though neither they nor their accountants had deployed enough AI for it to make a difference in billing. Firms resisted. For now.
Even so, firms face a genuine tension here because AI is changing the way they work, but not yet in the way clients expect.
“Some law firms have great AI,” says Jackson-Grant. “They can do some really cool stuff. But they need a lawyer to look at it and review it. It isn’t yet the answer that clients think it is.”
And even if it were, Flanagan points out, time spent isn’t necessarily the point.
“In audit, for example, clients are paying for a firm of quality and standing to sign off on all the accounts. Even if one day an AI could handle an entire audit, it will likely never be able to do that.”
What is interesting, though, is that this argument highlights the age-old paradox of the billable hour. The best professional services firms have always given their clients more than just their time. And annual WIP write downs show they often end up charging less.
The human case
There is one argument for pricing reform that rarely appears in the business case but may be the most compelling of all. Pricing correctly is good working practice, which can in turn be good for mental health.
“Everybody wants to do good work with good clients,” says Flanagan. “So, it is really challenging when, because there hasn’t been a good fee negotiation, you have to write off-work.”
Poor pricing strategies and write-off culture encourages harder, not smarter, working and turns the billable hour into a source of stress. A culture that demands hours, then writes them off is not just commercially inefficient, it can also be corrosive for morale.
The interventions required to fix this are not dramatic. Scope properly. Have the pricing conversation early. Flag when you are going outside agreed parameters. Make margin visible at the client level. Get two pairs of eyes on a price before it goes out. These are not transformation programmes; they are good commercial habits.
Firms that develop those habits will find that pricing reform hits the bottom line, strengthens client relationships, and makes their people’s working lives better in the process.
And, as with many things in professional services, the friction is more internal than external. Clients are more than happy to talk about money.
And for partners who’d rather not talk about pricing? The solution is straightforward: Hire someone who can.
James Lumley, freelance journalist, corporate writer, trainer and coach.
www.byline.london
