Law Firm Economics 101: A Client-Focused Primer on the Primary Levers of Law Firm Performance

The commercial terms negotiated between law firms and client legal departments have long been plagued by information asymmetry at best, and just plain misunderstanding at worst. The business models of law firms and the underlying metrics and incentives are often misunderstood by client-side counterparts, and this more than anything else generates substantial friction in the negotiation and implementation of fee arrangements. Whether hourly billing or one of the many varieties of alternative fee arrangements, there are common, fundamental economic principles underlying the proposals firms make, the parameters within which they must operate in order to run a sustainable business. Anyone who has ever asked any of the following questions should attend this session: What investments and expenses must firms make to deliver the caliber of services clients demand? How does the revenue model seek to cover these costs and generate surplus funds to reward good performance? How are these economics applied at the firm, practice group and matter-level? This program will reveal the foundational drivers underlying law firm performance and the economic levers which govern the professional services business model. We will illuminate attendees on the landscape of costs, resource allocation decisions and mutually beneficial commercial terms that will arm clients with the necessary understanding of the underlying financial drivers that govern the risk, reward and collaboration dynamics in the law firm/client relationship. We will show how some efforts to minimize costs actually can have a negative effect on the client’s business, and explore how a purely discount-driven savings strategy is a flawed approach to maximizing value. Every relationship will benefit from establishing a common understanding of the incentives that motivate behaviors in these delicate service provider relationships.