FIRMS GRAPPLE WITH NEW PRICING PRESSURES

NEGOTIATING prices with clients is the clearly the biggest challenge facing law firms in Australia according to the latest CommBank Legal Market Pulse, and those firms reforming their billing practices have the highest level of optimism for the future.

The report shows that negotiating prices with clients is cited as challenging by 73 per cent of top-tier firms, and 78 per cent of mid-tier firms, well above the next biggest challenge of winning new business, which 55 per cent of top tier firms and 56 per cent of mid-tier firms rate as a challenge.

The report notes that several trends have converged to make pricing and price negotiating a serious challenge, as clients have used a range of techniques to reduce their legal spend.

These include:

• An increase in in-house counsel
• Low-cost outsourcing
• The use of a panel of providers who are forced to compete on both price and service for a variety of matters.

However, the report says there are indications the industry is responding to the challenge through a number of initiatives, including:

• Exploring alternatives to traditional hourly billing
• Investingating value-based billing alternatives that focus on the benefits to the client
• Enhancing the depth and professionalism of their price negotiation capabilities

The report states that these initiatives are achieving results.

Those firms working to change their pricing strategy are seeing benefits.

"There is a clear link between firms' pricing capabilities and their overall levels of optimism about business conditions," says the report.

"Firms who are optimistic about overall business conditions are significantly more likely to say price negotiations are manageable than their pessimistic peers."

Overall, confidence in the outlook for the Australian economy is improving among law firm leaders, with only 13 per cent having a negative outlook, down from 18 per cent six months ago.

Mid-tier firms are more confident, with one in five predicting the economy will perform well in the year ahead. In contrast, a previously confident top-tier has become significantly more pessimistic, with only 9 per cent of firms expressing a positive view, down from 33 per cent six months ago. And eight in ten top tier firms have a neutral view of the economy.

Firms of all sizes predict revenue growth in 14 of 15 practice areas and top tier firms anticipate an average 2.4 per cent lift in profits from the previous year, while mid-tier firms predict a 1.6 per cent increase.