This blog post breaks down microeconomics for practice managers, drawing insights from episode 06 of Hearsay the Legal Podcast.
The legal services landscape is evolving faster than ever, with increasing demands for efficiency, flexibility, and innovation. For practice managers, the challenge is twofold: adapting to these changes and empowering teams to thrive in this new environment. Based on insights from Dr. George Beaton’s discussion in his episode Microeconomics for Lawyers on Hearsay the Legal Podcast, here are ten actionable strategies for law firm managers to differentiate, innovate, and ultimately lead their practices towards sustainable success.
1. Embrace the Concept of Value-Based Pricing
Traditional hourly billing can sometimes misalign with clients’ expectations, especially for repetitive tasks. Dr. Beaton suggests considering value-based pricing, where fees are determined by the outcome or value delivered rather than the time spent. Ask yourself: how do your clients perceive value?
You can align with your clients’ interests by focusing on certainty and putting a fixed price on the solution or results delivered. This is called outcome pricing or output pricing, and you can adapt this into your practice by establishing set prices for predictable services, such as contract reviews, while using menu-based pricing for more complex tasks. This approach not only appeals to clients’ desire for cost certainty but has also been shown to improve firm profitability.
2. Recognise the Power of Differentiation
Law firms today face competition not just from other firms but from legal tech platforms and other professionals. Differentiating your practice by highlighting specific expertise, unique services, or innovative pricing structures can position your firm as a preferred choice. For instance, NewLaw models (leveraging technology and non-traditional billing) offer fresh ways to appeal to tech-savvy clients who value streamlined processes.
3. Rethink Client Communication
While traditional advertising might still seem out of place in some legal fields, there’s room for “communication” instead of just “advertising.” Dr. Beaton underscores that clients need clearer, more transparent communication about services and costs to bridge the “information asymmetry” that often exists between legal experts and clients. Rather than advertising your services or the work experience of your lawyers which may be meaningless to your client, consider communicating the value that you provide to your client, or the tangible benefit they wish to receive. This can be achieved through regular, informative updates to clients and a comprehensive FAQ section on your website to demystify your services.
4. Empower Junior Lawyers to Drive Innovation
Junior lawyers are uniquely positioned to bring fresh perspectives and energy to the firm’s innovation projects. By involving them in initiatives like process improvement, legal tech integration, or client engagement strategies, you can cultivate a culture of continuous improvement and retain talent that may otherwise seek opportunities elsewhere. Consider assigning junior lawyers to projects that align with their interests, allowing them to grow within the firm and bring forward new ideas.
5. Utilise a Balanced Scorecard for Holistic Success Measurement
Tracking key performance indicators (KPIs) in isolation can often miss the bigger picture. Instead, consider a balanced scorecard approach that looks at finances, client satisfaction, employee engagement, and innovation. A scorecard helps to contextualise numbers, such as profit margins and client feedback, alongside intangible metrics, such as team morale and project completion rates, for a comprehensive view of the firm’s performance.
It is a performance management tool, but instead of measuring one key performance indicator, it measures a range of financial and non-financial metrics, all of which are aligned to the objectives of the organisation. In essence, the balanced scorecard puts the performance of the individual in the context of the strategic direction of the organisation as a whole.
6. Address Commoditisation with Technology
Commoditisation of legal services is inevitable as more firms offer low-cost, high-volume services through automation. For tasks like document preparation, firms can adopt document automation platforms to free up lawyers’ time for higher-value tasks. This approach not only boosts efficiency but also allows the firm to offer competitive pricing without compromising on quality.
7. Leverage Technology to Tap into Unmet Legal Demand
The market is far from saturated. In fact, according to a study by the SRA, Solicitors Regulation Authority in England and Wales, only about 10% of legal needs are met by traditional legal providers, with many unmet needs filled by accountants or informal advice. Embracing tech-driven services, such as virtual consultations and downloadable legal templates, can help reach this underserved market, offering convenient, affordable legal support to individuals and small businesses that may not otherwise seek legal assistance.
8. Incentivise Efficiency to Combat ‘Inefficiency Factories’
The traditional hourly billing model can inadvertently incentivise inefficiency, as billing more hours means more revenue. To counter this, consider rewarding efficiency by setting up performance incentives that focus on outcomes rather than hours worked. Metrics like client satisfaction, matter completion time, and repeat business can serve as benchmarks for productivity, fostering a results-driven environment.
9. Innovate with Continuous Improvement Projects
Managers should adopt the concept of continuous improvement, borrowing from the Japanese principle of Kaizen, to ensure that the firm consistently advances towards greater efficiency and client satisfaction.
Kaizen is a way of continuously improving business activities by involving all employees from the CEO to the line worker in identifying, suggesting and implementing improvements. The Toyota corporation is one of the largest organisations to embrace ‘Kaizen.’ Toyota has an inclusive approach to Kaizen where all line personnel in their factories are expected to stop production if they see an abnormality and go up to their supervisor and immediately suggest an improvement to resolve it. The basic concept is to identify and quickly remove waste or obstacles rather than merely persisting in the face of them.
Regularly track the progress of innovation projects, such as tech adoption, workflow enhancements, or client communication improvements. Prioritising projects that yield the highest impact can ensure the firm’s growth aligns with long-term objectives.
10. Educate and Involve Clients in the Pricing Discussion
Transparent discussions around pricing and value can help set client expectations early. Offer clients clarity on what services cost and why, as well as options like fixed fees, to demystify the pricing process. A well-informed client is more likely to appreciate the firm’s value and return for future business. Additionally, consider surveying clients to better understand their pricing expectations and satisfaction levels, which can be invaluable in refining your offerings.
Final Thoughts
The changing landscape of the legal industry provides law firm managers with both challenges and opportunities. By adopting these strategies—many of which Dr. Beaton highlights as key to staying competitive in a market shaped by innovation—firms can position themselves as client-focused, tech-enabled, and forward-thinking. While the journey may involve rethinking traditional processes and empowering new voices, the potential for growth and differentiation in the current legal market is significant. Embrace these changes, and your firm will be well-equipped to stand out in the evolving legal services landscape.
