Monday, March 25, 2013

The ROI of Price Stability

How much can your firm benefit from training on reducing price concessions? Law firms can easily gain an annual 1% improvement in revenues and, likely, much more by effectively handling price objections.

Using the following assumptions, replace the numbers provided with figures pulled from your firm’s billing data. The percentages are conservative and will often be higher. Regardless, once attorneys master the skills to resist pricing concessions, the percentages should double or even triple.
A rough ‘napkin’ calculation shows the benefit of managing discounts:

Firm annual revenues at full rack (standard) rate: $52,000,000
Percentage of firm revenues subject to discount agreements: 23.0

Actual revenues subject to discount agreement: $11,960,000

Average rate of discount percentage: 12.5%
Average lost revenues resulting from discounts: $2,750,800
First year recapture rate resulting from improved sales: +20%

Estimated recaptured revenues: $550,160

Discounts and price concessions are not a cost of doing business. They are a cost of not doing business well. A discount is often a reflection of the firm’s inability to convince clients of the value that the attorney or firm brings to the company. Firms who learn effective ways to justify the fees they charge by demonstrating the value they bring to their clients will enjoy higher profit margins than those who simply succumb to discount requests.

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