Offering value for money

A firm’s competitive advantage will also depend on its ability to offer clients value for money. For large City firms, this doesn’t necessarily mean the ability to charge lower hourly rates whilst still turning a profit. Smaller, cheaper firms might lack the requisite capabilities and experience to meet the legal needs of City firms’ target clients (which are often large, global organisations with complex legal needs), meaning larger firms need not compete on fees with those smaller, cheaper firms. In other words, the more unique and specialist the firm’s offering, the more it may be able to get away with charging higher fees, as prospective clients may have fewer options to delegate work elsewhere. 

To give an analogy, suppliers of luxury consumer goods tend to be able to charge higher prices than suppliers of more generic, lower value goods. This is because luxury goods are often more unique, and customers in the market for luxury goods are less impacted by price changes (i.e. like large corporations, they tend to have deeper pockets). That being said, although clients of large City firms may appreciate the value in paying high hourly rates for expert human input, they may feel differently when it comes to more administrative, labour-intensive work.

For smaller firms that tend to advise on lower value work and rely more on a high volume of clients, flexibility on fees might be more important to their clients. This means that to maintain a competitive advantage, such firms might need to find ways to remain profitable, whilst also offering lower rates, discounts or fixed fee arrangements (note that a fixed fee quote should usually be subject to various caveats to protect a law firm in the event that a project escalates beyond what was initially anticipated).

Keeping costs down

Some firms prioritise keeping their costs down so that they can charge lower fees whilst still remaining profitable. For example, more and more firms are operating predominantly virtually, which reduces the need for office space (this is traditionally one of a law firm’s most significant expenses, taking into account rent, utility bills, maintenance, cleaning and so on). 

Some firms also utilise flexible resourcing where possible, which can involve temporarily hiring freelance lawyers to work on specific projects when they escalate, rather than hiring more full-time lawyers who end up underutilised during quieter periods. Some firms have also moved towards going paperless, which – environmental benefits aside – can save many thousands of pounds in printing costs each year.

As a more general comment about fees, Alex McPherson reiterates that low fees will not automatically equate to a competitive advantage, and getting this wrong can often result in law firm insolvencies. Many small law firms have failed following a race to the bottom on fees, as exceptionally low fees can leave no safety margin if clients fail to pay on time (or at all), let alone budget for the provision of professional support and building a positive culture.  

Adopting legal technology

Adopting legal technology – for example to automate certain workstreams and simplify project management processes – can also help to reduce costs, and therefore give firms scope to be more competitive when it comes to fees. This is because implementing legal technology can reduce the number of human hours needed to complete legal matters (which is great for clients, who tend to pay by the hour), whilst potentially enabling firms to get more out of their employees (who will have more capacity to work on a broader range of matters as a result of these tech-related efficiencies). 

Value-added services

Firms might also need to ensure that they’re providing certain additional services and benefits that clients won’t necessarily have to pay for, as these can ensure clients feel that they’re receiving “value for money”, even where hourly rates are high. 

For example, some law firms deliver free training sessions for their clients’ in-house legal teams, publish regular industry or legal updates (this might be via email newsletters, podcast episodes, YouTube videos etc.), invite clients to round table discussions focused on issues and developments relevant to their businesses, or provide secondees to help clients with their day-to-day legal needs. 

Note that “secondee” in this context means one of the law firm’s lawyers who is temporarily “lent out” to a client – usually free of charge – and tasked with working exclusively on that client’s own legal matters (often in that client’s offices, as if they were one of that client’s employees).