The Predictability and Perils of Over-Monetization

"There is no such thing as over-monetization!" Until the client catches on. And then you're screwed. I don't know when I first learned that money could become a verb and monetize and monetization were a thing. But as a young corporate guy moving up the ladder, these words were ideal additions to my vocabulary. If there was one thing I was good at, it was making money for my organization. But in my perpetual quest to close sales, develop new products, defeat the competition, and win awards, I never lost sight of the client's needs. In fact, it was this laser focus on long-term client satisfaction that formed the basis for my success year after year.

It sounds simple in practice, but when faced with the choice to make a few more dollars today while potentially putting the long-term client relationship at risk, many businesspeople are awfully short-sighted. And so it is with lawyers, whose compensation plans often reward billing hours, collecting cash receipts, and generating sizable short-term profits. Maximizing matter profitability often conflicts with a client's desire to lower legal spending. So we might win the battle but lose the war when the client selects a different law firm for future matters of this type. In the end, did we really profit from this transaction?

In this endless quest to make money and make sales, why are we surprised when clients react negatively to high prices? In simple terms, in a price elastic (or price sensitive) market clients buy less when the price goes up and they buy more when the price goes down. In an inelastic market, the price doesn't have the same direct influence on buying behavior. Many law firm partners came of age at a time when clients were less price sensitive, or had sufficient legal budget so they could overcome their annoyance at rising prices. A simple google search will reveal in-house counsel complaining of rising rates for decades, but most did little about it until the "Great Reset" when shrinking legal budgets drove new behaviors. In addition to seeking lower prices -- by extracting price concessions from incumbent law firms and/or by shifting work to smaller firms with lower rates -- clients also began to seek alternatives and substitutes, e.g., more in-house staff, or LPOs, or non-traditional legal providers, to meet their legal demands. This behavior is as predictable as the sun rising in the East.

The concept of over-monetization is simple: when clients can obtain similar services at lower prices elsewhere, or when clients can obtain reasonable alternatives and substitutes at lower prices, and they act on this, your prices are too high. If your offerings are over-monetized, the clock is ticking. You can try, but you will never find enough new clients with pockets so deep they don't mind over-spending, or with management so inept that they don't recognize over-spending, to make up for the rush of clients out the door.

It is not hard to identify over-monetization. In the legal space, there are some excellent providers variously serving the buyer or seller side to provide such benchmarking. But remember, it's not just how your published rates compare to other firms' published rates; it's what clients are actually paying that matters. However, numerous law firm leaders persist in believing their offerings are unique, not subject to price elasticity, or tied to a premium brand that is immune from the price pressures facing weaker competitors. For a few law firms, this is true. Odds are, this isn't you. (I'm being gentle. All legal services are eventually subject to price pressure.) If you're observing some leading indicators of price pressure, including decreased realization, decreased client retention, decreases in new matters, a declining competition win rate, increased discounts, increased demand to contain firm overhead, and so on, then you're in the thick of it.

Recognizing price sensitivity is half the battle. Business leaders have a bias for optimism, but when that optimism turns to blind stupidity the organization is in trouble. Some years ago my parent company's brand new CEO insisted that warnings of price pressure and declining market demand were merely the bleats of frightened sheep, so he outlawed the term "over-monetization" in all business discussions. He then insisted that all product lines must adopt a hefty price increase in the coming year, irrespective of past price increases, client demand, competitive forces, or any other factor. Every. Single. One. My team had spent a year developing a new pricing methodology for our core product offering because past management’s excessive price increases had eroded the goodwill of even our most loyal clients. The widespread adoption of substitutes and alternatives was rapidly eroding our revenues and profits as well, so we not only resisted raising our prices, we planned to lower our prices. And we were overruled.

More onerous price increases took effect, and a few years later, long after most of us had moved on in frustration, the entire business unit disappeared. Completely. There was nothing left. The CEO, however, was handsomely rewarded when the price increases led to a one-time boost in revenues. Market analysts loved him. Until the following year when clients resisted that tactic. So he then conducted layoffs to boost profits. And he was rewarded again. Consistently boosting prices beyond what the market will bear works if your goal is to make a lot of money and run. But it's no way to build, or lead, a sustainable, successful business based on repeat clients.

The lesson is that ever-rising prices will not only eventually intersect with the clients' desire to spend less, it will often cause the clients' desire to spend less. But it doesn't have to be this way. Any business school teaches the concept of a business cycle in which products and services evolve from shiny new ideas adopted by a brave few, to commonplace tools in use by many, to outdated anachronistic offerings relied on only by slow movers. Typically prices are low for early stage offerings, and prices increase during the lifecycle until they reach their apex, at which point no one buys any longer. If your current offerings are over-monetized, you need to find new early-stage offerings that better meet market needs. Or start to downsize your business, because declining revenues and profits will not support the infrastructure you've built.

For law firms, this means finding new ways to price and package existing legal services so they better meet clients' desire to spend less. This can be a good thing. We can capture more market share from competitors who won't change their approach. We can lower our prices and win more. Of course, savvy business leaders recognize that we can't merely lower our prices to find long-term success; doing so would be tantamount to suicide. But we can embrace project management and process improvement in order to profit from efficiencies even as revenues for some product lines are flat or declining.

Your law firm is a business, so get over your angst about the use of words like price, and product, and sales. It's not a matter of if, but when your services will be over-monetized. So get there before your clients and you can reinvent your product offerings, and your business, before the disruptive new entrants and your fast-moving competitors dictate your future.

Timothy B. Corcoran is principal of Corcoran Consulting Group, with offices in New York, Charlottesville and Sydney and a global client base. He’s a Trustee and Fellow of the College of Law Practice Management, and is a member of the Hall of Fame and was 2014 president of the Legal Marketing Association. A former CEO, Tim guides law firm and law department leaders through the profitable disruption of outdated business models. A sought-after speaker and writer, he also authors Corcoran’s Business of Law blog. Tim can be reached at Tim@BringInTim.com and +1.609.557.7311.

What's your RSTLNE?

Smart people do their homework, rely on past experience and pattern recognition to guide future behavior, and practice. But really smart people often "wing it," preferring to use their towering intellect to smoothly navigate thorny situations that would frighten lesser mortals. And so it is with many law firm partners who face the same client questions and objections again and again, and who fail to think through, memorize, and practice their responses.

A cultural touchstone in the U.S. and numerous countries around the world is the game show Wheel of Fortune, in which contestants compete for the opportunity to solve a word puzzle one letter at a time. In the final round, the contestant may select several consonants and a vowel, and then the clock starts. Contestants correctly guessing the word puzzle before the clock stops win the grand prize. The odds of winning are largely influenced by the letters a contestant selects.

Over time contestants learned the most common English letters are R, S, T, L, N, and E, so these became the default guesses by every contestant in every episode. Eventually the producers conceded these default letters, so now the final puzzle starts by plugging in these letters and then allowing the contestant to select an additional three consonants and one vowel. The lesson to be learned is that we can increase our odds of winning in any business setting by seeing patterns and understanding the key differentiators. In your world, what is your RSTLNE?

I've managed quite a few sales teams, and one exercise we've always completed for every product or service, at least once a year, is to review our most common client objections. "Your product costs too much" or "You lack feature X but your competitors have it" or "Your organization is too small and we're afraid our needs will tax your support infrastructure" or "We can't secure buy-in from senior management to proceed" and many more. We've all heard the same challenges and one of us, or collectively all of us, can articulate a reasonable response to address each concern.

To be clear, the goal isn't to develop some smarmy verbiage to hide our shortcomings or mask our price point. Our goal is to focus on the value we deliver, how prior clients have derived quantifiable benefits from our offerings, and offer suggestions for how similarly situated clients have overcome these same obstacles. Nothing demonstrates experience like acting as if you've been there before. Pithy responses to real concerns won't cut it. So we work on this, we write simple, accurate, effective responses, and we practice, even role-play, our interactions with clients.

And then there are really smart law firms partners who engage with clients and potential clients as if it's the first time they've faced client concerns:

Corporate procurement officer (interviewing law firm partner, who hopes to win the designation as a "preferred lawyer" for the company's legal needs): "What makes you different than the other lawyers we're evaluating?"

Lawyer: "Well, I have a great deal of experience in this industry segment, we hire only the finest lawyers, and we put our clients' needs first."

Procurement: "Okay, but everyone else we've interviewed says the same thing. What makes you different?"

Lawyer: "Um, we've worked extensively with companies like yours and we really care deeply about our clients."

Procurement: "Thank you, but you've really just repeated your earlier remarks."

Lawyer: "Did I mention that we can offer preferred rates?"

Procurement: "We expect preferred rates from all of our providers. Don't call us, we'll call you."

What's your RSTLNE? In your practice, your business, your domain, what challenges do you face every day? Have you written them down? Do you have a scripted response? If I were to ask each partner in your practice group how to respond to a handful of simple questions about price, quality, communication, service delivery, responsiveness, change management, project management, or billing, would I receive the same response? If not (I'm being gentle, the answer is of course not), I recommend you schedule time to gather the partners in a room with a whiteboard or a flip chart and work on this together. It's a simple process.

1. Ask everyone to list the objections or concerns they routinely hear from clients or prospective clients.

2. After capturing a couple dozen responses, have everyone tick off their top five selections. Add up the votes and focus on the top five, or at most the top ten.

3. For each objection, identify the root concern. For example, "Your rates are too high" could have a number of meanings, e.g., comparable firms offer substantially lower rates for the same services; this is important to us but we have no remaining budget this year; this is not a high priority or we'd find the funds; you haven't proven that you're experienced enough to warrant high rates, and many more. Many objections are smokescreens. What is the real underlying concern?

4. Begin listing elements of your response. Focus on benefits, not features. "We're global" isn't a benefit, it's a feature. A benefit answers the client's question, "So what?" A potential client with a global footprint with similar needs across borders and time zones might find a global law firm offering consistent services and rates to be a cost-effective alternative to hiring numerous local counsel to reinvent the wheel, so position it that way.

5. Avoid statements you can't prove or that everyone else can state just as easily. "We care about our clients" is nonsense. So does everyone. "We care about our client's legal spending, so we've adopted a rigorous approach to matter budgeting with a 5-step process to communicate in the event the scope of the matter materially changes our cost or time estimates" conveys the same sentiment with detail. Capture a handful of statements to address each of the objections or concerns.

6. Delegate the work of writing up a concise narrative for each. Spread the work around. Ten objections can be handled by ten different people, or teams. Ask a valued member of Marketing to be the editor. Every first draft will be too long, too lawyerly, and simultaneously too detailed and too vague. Count on it. Get over it. You write well in legal documents. You're not a good writer for crisp, effective, responses to common objections. This takes practice. Trust that none of the partners is a good proxy for a client's perspective, so whether an individual partners despises the draft or loves it is meaningless. An objective observer, potentially even a valued client, or a friend who's not a client, or of course your credentialed Marketing professionals, have a better ear for this than the partners do. Trust me on this.

7. Reconvene and practice. Set up simple role plays where one partner plays the client and raises the objection and the other partner shares the prepared response. Even better, video record these role plays and review them for brevity, sincerity, and body language. Implement some gamification, set up a Shark Tank panel and vote on who does it best, who's prepared, who's polished, who's sincere, and give prizes for achievement. Then schedule extra help for those who don't get it right away. Most won't. It's like taking a dance class, it feels like you have three left feet until you get the hang of it.

This checklist is a simple process. Yet, sadly, too many practice group chairs will discard the exercise as unnecessary, or too time-consuming, or possibly even insincere. The grand prize in the game show of business development typically goes to those who work the system rather than try to beat the system. Partners are busy people, to be sure, but when there is limited time, budget, and resources to generate new clients and new revenue streams, it's worth putting in the extra effort. Smart people do it. Super smart people tend not to. Which calls into question whether we've been too generous with that label.

Timothy B. Corcoran is principal of Corcoran Consulting Group, with offices in New York, Charlottesville, and Sydney, and a global client base. He’s a Trustee and Fellow of the College of Law Practice Management, an American Lawyer Fellow, and a member of the Hall of Fame and past president of the Legal Marketing Association. A former CEO, Tim guides law firm and law department leaders through the profitable disruption of outdated business models. A sought-after speaker and writer, he also authors Corcoran’s Business of Law blog. Tim can be reached at Tim@BringInTim.com and +1.609.557.7311.

Collect Your Fees or Collect Your Belongings

The ongoing Dewey & LeBoeuf trial provides endless fodder for observing dysfunctional organizational behavior. Today's commentary was prompted by the quotes attributed to a former Dewey partner in response to nagging from a collections clerk. The partner had apparently missed his monthly collections target of $1.6 million and didn't appreciate being hounded.

"I am the reason you have a job. You obviously have no clue about what is appropriate. I am going to talk to [the Chief Operating Officer] and insist that you be fired if you ever send me an email or call me again. If he does not, I will seek other opportunities at a firm that gets it."

What exactly is a firm that "gets it?" One that allows partners unfettered access to firm resources without demanding anything in return, such as revenue? One that allows a partner to speak and act like a schoolyard bully to a staff person doing her job? One that allows a shareholder to meddle in day-to-day operational affairs, such as the acceptable age for receivables, how our collections clerks should handle their responsibilities, and who gets fired? And exactly what is he threatening? "Don't make me collect my fees, or I'll quit... and forever absolve myself of all responsibilities to collect these fees." We get it. You don't like to collect your fees. Who does? Well, in fact, many do.

Photo: ©iStockphoto/Taphouse_Studios

I've shared this thought with numerous law firm partners: If you are routinely discounting fees or failing to collect your billed fees, one of two things is happening. Either your clients do not believe you're worth the fees you charge, or YOU do not believe you're worth the fees you charge. Actually, it's probably a bit of both.

Every so often, I think it's helpful to offer a bit of tough love to partners who think their accomplishments give them free pass to act however they want, even when their actions are harmful to the business. Allow me to dust off my former CEO hat and offer my contribution.

• If you act like an asshole, you should be fired. Point me to one firm, anywhere, ever, where a perpetual asshole was shown the door and the law firm collapsed. It doesn't happen. We're all replaceable. Being a schoolyard bully to a lowly staff person is easy. Collecting your fees is evidently hard. So if you want to prove you're all that, then collect your fees.

• The top dog rainmaker isn't the reason everyone else has a job. In fact, it works both ways. The top dog rainmaker looks good because there are many people marketing the firm, managing key client relationships, managing firm operations and infrastructure, and doing the legal work necessary to satisfy the client that you brought in. Also, the firm exists because of the efforts of many others who built the brand and paved the way for you to get a job here. Your success wasn't inevitable; it was a result of an extraordinary team effort. If you don't like, or can't understand, the team approach, collect your belongings and leave. If you think you did it all on your own, then go form your own one-man firm and prove you can compete.

• Many partners are not 100% utilized. Many partners do not bill 100% of the time they capture. Many partners offer discounts that erode profitability. Many partners rewarded for billing time do not fully exploit leverage to improve firm profitability because doing so will reduce their hours. Many partners cost too much for what they generate. So after all these deductions to the firm's profitability, when you have the nerve to refuse to collect whatever discounted fees the client has agreed to pay, you are willfully engaged in a conspiracy to screw your colleagues out of rightfully earned compensation. You benefited from a plush office, the firm's powerful brand strength, and all of these lawyers and staff being paid to work on your matters before you collected a penny. Collecting your fees isn't a favor you're doing for the rest of the firm, it's your rightful obligation. If you can't stomach asking clients to pay for your work, then you have abdicated your fiduciary duty to the firm and you have no right to be an equity shareholder.

• Law firms often adopt the partnership model as a business form for its tax, liability, and profit-sharing benefits. But let's be clear: operating as a partnership doesn't convey day-to-day management responsibilities to every shareholder. If you want to engage in firm management, step up and volunteer or run for office. Otherwise, leave firm management to others. If you don't like the firm's collections policies, or business development team, or IT services, or secretary ratio, or compensation plan, or the color of the logo, then communicate these concerns to those in charge and then go practice law. Or start your own firm where you can make all the decisions, drawing on your substantial expertise running a business... though if your insight into collections is any guide, your career as a titan of business will be short.

Law firm senior leadership and practice group chairs, if you're not having this conversation with your partners who fail to collect their fees in a timely manner, then you should question whether you're cut out for your role. A law firm is a business. If every partner is allowed to choose which policies they will follow, you're not running a business, you're operating a holding company of independent contractors sharing a logo. Your failure to establish sound policies and to hold everyone accountable means shareholders are losing money and compromising the quality of the legal services delivered to the clients. Is it any wonder why clients are dissatisfied and seek alternative approaches to addressing their legal needs?

Timothy B. Corcoran is principal of Corcoran Consulting Group, with offices in New York, Charlottesville, and Sydney, and a global client base. He’s a Trustee and Fellow of the College of Law Practice Management, an American Lawyer Research Fellow, a Teaching Fellow at the Australia College of Law, and past president and a member of the Hall of Fame of the Legal Marketing Association. A former CEO, Tim guides law firm and law department leaders through the profitable disruption of outdated business models. Tim can be reached at Tim@BringInTim.com and +1.609.557.7311.