Strategic Matter- Spring 2012 V1

The Cost Is Right: Investigating the Di erence Between Achieving Good Pricing and Better Cost Recovery Strategy Running the business of a law rm is exactly like the game show The Price is Right: just name the right price for your back o ce support services, and your rm wins the pro ts per lawyer (PPL) jackpot, securing a coveted spot on one of the annual AmLaw rankings–and maybe a brand new car. No? More and more, as a result of increasing client and internal scrutiny and changing work ows that are impacting billable units (e.g., copy moving to print), your rm’s cost recovery strategy and not necessarily your expenses will be the determining factor in whether your rm’s back o ce operations are recovering their costs. The determining factor.

Debunking Price Reduction Bragging Rights Many rms take a great amount of pride in negotiating new contracts to decrease expenses , but when was the last time anyone bragged about increasing their billable percentages? Recently, I was sitting in front of a client at a kick-o meeting for managing their outsourcing Request for Proposal. As part of this engage- ment, my rm is completing a cost recovery benchmarking analysis. is analysis examines each aspect of a rm’s cost recovery strategy, bench- marks their billable percentages, rates and their net realizations against industry and peer standards. Within this framework, we work to imple-

ment a rm wide strategy which will increase the overall net realizations. At that kick-o , however, one aspect this particular rm did not include for analysis in their recovery was their overnight deliveries. When we asked the project team why they had not even submitted this informa- tion, they informed us that the rm had just negotiated a new overnight services contract and were now getting great pricing. e rm did not see the need to take into consider- ation the cost recovery aspect. ey will be shocked.

When preparing your rm’s budget for the year, you take into account the revenue the rm will be receiving, the di erent types of revenue, consider projected contingency fees coming in or project additional work that carries a higher hourly billing rate. And yet, many times, signi cant cost recovery revenue is le on the table, isn’t even taken into consider- ation when examining expenses in support services areas—even when these revenues far exceed any bene - cial pricing model you may negotiate for your back o ce support services. Even if running the business of a law rm were a game about price, this would be unacceptable. But more- over, the business of a law rm is not a game—it is a business. Period.

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