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.
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.
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.
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Mattern & Associates
