November/December 2020

Finance

The “New” New Normal: Pricing, Profitability and a Process Improvement Twist

Frederick J. Esposito Jr.

When we hear the phrase the “new normal,” we all flash back to the Great Recession, which began at the end of 2007, and remember the collapse of the real estate market, how credit dried up and how law firms struggled through a most difficult time. The immediate reaction was to cut costs. The profession saw attorneys and staff losing their jobs, and many smaller firms were acquired. The new business model that followed created an atmosphere for commoditized work thus creating opportunities for third-party legal service providers such as LegalZoom. But more importantly, we saw a shift in client expectations and the need for “alternative” pricing. In response, we saw many alternative fee or fixed fee boutique law firms emerging, so the business model for law firms radically changed with a renewed attention to pricing, legal project management, efficiency, business development, more client focus, and the biggest one of them all, value.

What Do We See Happening During the Pandemic?

We are seeing many of the same symptoms from the Great Recession as we officially enter the recession of 2020. The 2020 recession was already on the horizon, but the COVID-19 pandemic accelerated a trend already in motion. Clients, particularly with general counsel, continue to push back on fees, looking for more predictability and creative pricing. Again, the Paycheck Protection Program (PPP) and other federal subsidies notwithstanding, there was an immediate reaction to reduce legal spend. Many law firms furloughed employees and, for those remaining, initiated salary reductions that were in some cases as high as 50 percent. As always, the knee-jerk reaction is to cut expenses, but it is still a revenue game, and a focus on productivity should not get lost in the mix. While alternative fee arrangements (AFAs) and legal project management (LPM) have been around for quite some time, they are making another strong comeback, but with an added twist. We are seeing more focus on not only LPM as a tool for managing legal work and AFAs, but we are now adding process improvement (PI) to the new mix.

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