“Why retiring the billable hour is a win-win scenario”, first published by Briefing magazine, is an article by Stephanie Hamon, Head of Legal Operations Consulting.

For many years, in-house teams have faced pressure to deliver increasing value to their businesses, despite relatively stagnant budgets and headcounts. This issue will only be amplified over what looks to be a difficult year ahead.

With external spend often one of the biggest line items on the in-house legal budget, the usual response to this pressure is to renegotiate rates, request discounts or look for ‘value-adds’. Though these reactive measures may help meet immediate cost pressures, they do little to deliver on the additional value being demanded by the business and, in the longer-term, can result in friction with law firms facing the same pressures.

The alternative is to adopt a more proactive approach, incorporating creative pricing and resourcing models that offer in-house teams budget certainty and enable law firms to operate profitably.

Fostering such a commercial model can be a significant shift, but starting with three key principles can help move you in the right direction.

Basing pricing on the value of the output, rather than work done to create that output (that is, the input), is key to developing a win-win model.

What constitutes value varies depending on the organisation, legal team and even matter, and can include factors such as speed, commerciality or specialist experience. If you can agree these factors and base the pricing mechanism around them, the value of law firm advice (and the associated spend) to a business becomes significantly easier to demonstrate.

What constitutes value varies depending on the organisation, legal team and even matter, and can include factors such as speed, commerciality or specialist experience. If you can agree these factors and base the pricing mechanism around them, the value of law firm advice (and the associated spend) to a business becomes significantly easier to demonstrate

What constitutes value varies depending on the organisation, legal team and even matter, and can include factors such as speed, commerciality or specialist experience. If you can agree these factors and base the pricing mechanism around them, the value of law firm advice (and the associated spend) to a business becomes significantly easier to demonstrateStephanie Hamon, head of legal operations consulting, Norton Rose Fulbright 

For example, if the principal requirement of a matter is a quick conclusion, an appropriate pricing mechanism might be a fixed fee with a ring-fenced portion dependent on hitting an agreed deadline. If completed on time, 50% of the portion is paid, with that number increasing or decreasing if the deadline is beaten or exceeded, respectively. This incentivises the firm to deliver on what the client values most: speed.

Taking time to comprehensively scope matters at the outset allows more accurate pricing to be developed, and enables mechanisms such as fixed fees or unit-based pricing.
This of course involves additional up-front work. Good scoping ideally identifies all outputs and breaks these down at a granular level into component deliverables and associated work.

For in-house teams, this clarifies expectations, surfaces any misalignment at the outset and creates cost certainty. For law firms, a clear understanding of the work enables resource planning and efficient delivery, allowing them to manage profitability without the worry of write-offs.

Using smart resourcing models helps firms maximise efficiency and deliver value to clients – without sacrificing profitability.

In practice, this might mean offering multidisciplinary teams (lawyers, data analysts, project managers) to run matters differently, employing formal resource management principles, leveraging lower-cost offices or junior resources, or implementing process and technology-driven delivery models.

For example, in running regular contract negotiations for clients, a law firm might implement a clear, standardised process supported by a live collaboration platform, allowing activities that previously required associates to be completed by paralegals. This allows the firm to remain competitive on costs, helping the client, while remaining profitable.

Given the pace of change in the legal industry, it is reasonable for in-house teams to expect services to be delivered in line with these principles, while remaining profitable for law firms. If you are open-minded, willing to collaborate and transparent, then value-based pricing (and resourcing) is a win-win proposition.