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Connecting the Dots: Modern Law Magazine Nov 18
Using Data To Price And Design Legal Services And Boost Client Satisfaction
Firms are racing to use AI as a way of patterning work. They’re developing taxonomies for activities and tasks to estimate work effort and pricing on new matters. Vendors are vying to deliver functionality that automatically infers activities and the nature of the work. And that's all good. You need to be able to estimate work effort. But that’s only a piece of the pricing and design puzzle. You also need to know how to quantify the risk assumed and tie it back to acquisition costs and client feedback. That's a big data challenge that firms would benefit from tackling.
Consider three clients with the same net profitability. Unless they have identical acquisition costs, risk profiles, and client satisfaction outcomes – it’s likely that at least two of the clients have been mispriced.
All things being equal, the more risk you assume, the higher you should get paid. The more you get paid, theoretically, your clients should be happier. Alternatively, if you're assuming low risk and you want high lifetime value, then you need manage the margins of that relationship accordingly.
Having the right amount of foundational data to do proper business planning and performance measurement is a must for law firms wanting to gain better margin control. For example, to lower your acquisition costs, you need to do more of the work that you can perform most effectively. But before you can do that you need data that allows you to assess acquisition costs compared to the efficacy of your business development effort.
Quantifying risk is a missing element in most firms' plans. Firms need to fully estimate the risk involved with taking on work outside of its wheelhouse. If it's a new matter type or if it's a new work type, what's the inherent risk in that? Firms need to look at data tied to that risk, whether it be financial risk, a reputation risk, and so on.
The last piece of the puzzle comes from you clients – measuring client feedback. Firms need to know which of those historic work efforts resulted in client success that is advancing the lifetime value of the client.
If you connect all of the dots and datapoints, you’ll take on work where you're adequately paid for the risk you're assuming. Where the acquisition costs are moving towards the successful delivery of legal services in a way that maximizes client satisfaction and lifetime value.
See the article in print: Modern Law Magazine - page 48 - November 2018