Dan Simmons is the Managing Director of the Lantern Legal Group, and Andrew Barnes is the Chief Financial Officer. The company is the largest regional law firm in Australia. Andrew is also President of the Australasian Legal Management Practice Association (ALMPA).
This interview was recorded during a trip to the United States with John Chisholm. We discussed making the switch from hourly billing to value pricing at a firm of 100+ employees.
First Impressions of Value Pricing
What is the most important thing you can share about pricing?
- Dan – The ability to agree to the price and payment terms up front with the client is beneficial to the practice of law.
- Andrew – Pricing should be different tomorrow than it was yesterday. Hourly billing has an expiration date.
- Dan – Value pricing helps their law firm comply with Uniform Law in Australia. Uniform Law states, for any matter over $750, the lawyer must provide an estimate of the fee to the client.
Why did you decide to make the switch to value pricing?
- Dan – Lantern Legal operates as three brands. Harwood Andrews serves a broad range of clients including family law and local municipalities. Sladen Legal focuses on business clients, especially in Melbourne. Adley Burstyner specializes in class action litigation.
- Andrew – Ron Baker and Paul O'Bryne made convincing presentations to the leadership of the firm about value pricing.
- Dan – The firm needed a better way to attract and reward the next generation of lawyers than tracking hours in 6-minute increments.
What was your initial reaction when you learned about value pricing?
- Andrew – It was exciting to learn about the concept. Since the firm had to continue to do business, a strategy was developed to transition over time.
- Dan – After two years of promoting value pricing on their webiste–Agreed Pricing in their lexicon–the firm started offering of at least one alternative fee arrangement to every client. It is a progression that is starting to snowball as the firm grows more confident in its ability to judge value and set prices.
- Andrew – The performance of lawyers has traditionally been measured by the number of billable hours. Part of the transition is choosing new metrics for performance.
- Dan – Currently, the firm allocates a portion of each fixed price to each attorney based on his or her role. However, the firm is moving toward attributing revenue to the practice group, away from individual performance metrics.
What has been the reaction of younger attorneys to the practice of value pricing?
- Andrew – They are very enthusiastic when discussing the concept. The challenge is to keep the momentum going in the day-to-day practice. Those who have previously billed by the hour now call it the “Dark Ages.”
- Dan – There is peer pressure to use Agreed Pricing when a matter is referred from one practice group, that uses value pricing, to another which does not. Also, the firm rotates seats on its pricing council to expose more attorneys to the practice of value pricing.
The Advantages of Value Pricing
What is a pricing council?
- Andrew – It is a group of attorneys including principals and first-year associates who review the scope and pricing of every matter over $5,000. Submissions are made using a standard template and feedback is provided by email to the practice group.
- Dan – The firm has become much better at scoping client engagements, even groups that are still using hourly billing. Clients receive a clear scope of the work to be done.
- Andrew – Precise scoping at the start of the engagement helps the lawyers to press forward during the middle to complete the matter and not allow scope creep to derail it.
How do you handle the scope of litigation matters, which can be uncertain?
- Dan – Our litigators scope the work really well. Now, we are working to translate the scope into a value price, which can include pricing each phase of the matter separately.
- Andrew – If you are committed to pricing certainty for your clients, then you have to tackle it. If the scope changes, you should have a process to notify the client and discuss how to handle the change.
Has the switch to value pricing been worth it?
- Andrew – There is a different vibe at the company because of the growth and reward from value pricing. If it were not working financially, I would say so.
- Dan – I think our firm is going to be more profitable. I think our team is happier and more collaborative because of the switch. We have also developed a backbone when it comes to pricing.