• Here’s a very interesting article from Oxford’s Internet Institute and Faculty of Law. It’s more than six months old, but I just found it. Artificial Intelligence Crime: An Interdisciplinary Analysis of Foreseeable Threats and Solutions. “Artificial Intelligence (AI) research and regulation seek to balance the benefits of innovation against any potential harms and disruption. However,

  • The data protection laws described in this post from Barnes & Thornburg are relevant to AI and blockchain. California’s New Data Protection Laws are Coming … but Colorado’s law is Already Here. “If you are a business that maintains, owns, or licenses computerized data that includes PI about Colorado residents, this new law applies

  • From Law.com, an article by Danny Tobey, a Vinson & Elkins partner, titled, “AI is Here, Is Your Company Ready? (Hint: No).” First, a bit of hype:”The scale and scope of artificial intelligence is well-described. Merrill Lynch predicts an “annual creative disruption impact” of $14 to $33 trillion by 2025. Accenture estimates AI

  • Surveys of in-house legal departments recently released by CLOC (Corporate Legal Operations Consortium) and Altman Weil underscore the threat that alternative legal service providers (ALSPs, e.g., Axiom and Elevate) pose to traditional law firms. AI permeates the world of ALSPs and its influence is growing.
  • Above the Law is very excited about the idea


This is the second installment of my three-part Pricing series. The first is here.

This installment covers the three essential elements of pricing legal services.

Tomorrow, in the final installment, I will show how to use Competitive Intelligence and Business Intelligence to develop the optimal price.


Pricing

The MIT Sloan Management Review7 identifies three factors to be considered in pricing (all apply to legal services):

  1. Cost-Based Pricing:relies on an analysis of the business’ operating costs to determine how to set the price to break even or achieve a certain return.
  2. Competition-Based Pricing: looks at data on competitors to determine appropriate pricing levels.
  3. Customer Value-Based Pricing: focuses on the customer’s perceived value to determine price.

Let’s consider each in some detail.

Cost-based pricing

This is directly relevant to the profit discussion in Part One of this series. Cost-based pricing means calculating the total cost of the work, including all allocated direct and indirect expenses. If ALL firm expenses are allocated to matters, any work priced above its cost will be profitable. Firms should be very reluctant to approve any new work projected to be unprofitable. Some firms have pricing committees established for the purpose of acting as gatekeepers in this regard.

Remember, the total amount of any discount fully hits your bottom line profit. Many partners are quick to give in to clients’ requests for discounts, but these should be given only as a last resort after exhausting other methods of increasing the value of your services to this client. (See “Customer Value-Based Pricing” below.)

This may be hard to believe, but I have seen it happen several times. Some in-house counsel receive bonuses based, in part, on the discounts they manage to negotiate from outside counsel. (This seems to have been more common a few years ago than today.) So, law firms would increase the entries on their rate sheet a bit only so they could then give the client the desired discount.
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