Ideas from the Front
The Price is Right
Some Firms Lower Costs to Attract and Keep Clients, But Others Don’t Buy Into It
Posted Sep 12, 2004 10:17 AM CST
By Jill Schachner Chanen
As a partner at a large national law firm, Chicago attorney Greg Scandaglia watched as billing rates rose to help pay for the costs of doing business.
Yet, he couldn’t help but wonder whether price really mattered. Clients always stressed cost, but few firms seemed to be doing anything more than paying lip service to the idea that lower rates may keep and attract business.
Four years ago, Scandaglia and a partner broke off from their firm to test a seemingly novel proposition in the legal marketplace: the same lawyers, the same services—but at a lower cost.
The gamble seems to have paid off handsomely. Scandaglia’s firm has grown to seven lawyers and has attracted a lust-worthy client roster—due in no small part to lowering rates by nearly a third.
“We have the same resumé that we had at [the large firm] and do the same kind of large commercial disputes,” he says of Scandaglia & Ryan. “But my billing rate is lower, and I am providing the same service.”
Scandaglia is not the only lawyer to see the wisdom of such an approach. Similar thinking is guiding the Midwest expansion of Detroit’s Dykema Gossett. Firm chairman Rex Schlaybaugh Jr. says the firm’s focus on serving the Midwest allows it to set its operating costs lower than if it were to expand across the nation.
But, Schlaybaugh says, the firm is still able to offer value in the form of expanded services, such as updates on the law, newsletters and access to technology.
“Clients are starting to ask about what kind of value they are getting and what are their alternatives,” Schlaybaugh says. “We try to be sensitive to that—be it in rates, quality, partnering—any way that we can provide value to them. If we have a bit of a rate advantage because of our cost structure, that’s great.”
Schlaybaugh says this approach has been the reason the firm has captured new business from Fortune 500 clients.
THE OTHER SIDE OF THE COIN
Yet, price-based competition is not for everyone. It can limit revenue for staffing, technology and growth. Ralph Baxter, chairman of Orrick, Herrington & Sutcliffe in San Francisco, says he believes it is a wise model for firms that understand their segment of the market.
“The peril is for firms that are not clear-eyed about where they are going in terms of segmentation. They mismatch their resources and revenue potential,” he says. Clients with high-stakes legal matters are unlikely to hire lawyers based on price, Baxter says.
Schlaybaugh agrees. “To maintain credibility with our clients, there are certain transactions we are not going to handle,” he says. “We do not have an office in Moscow or Beijing. But that is because we have chosen not to grow that way.”
Price-based competition is not for Greg Nitzkowski, a partner in the Los Angeles office of Paul, Hastings, Janofsky & Walker.
“Most major law firms have made the decision that the best work is that which is highly valued. It means you have to cut across a lot of disciplines. It means firms have to invest in infrastructure and in areas that are hot. You have to be able to continually serve clients,” he says.
Nitzkowski concedes that he has witnessed work that used to stay with one firm go out for competitive bidding. But, like Baxter, he says firms need to study the question of what lower rates will do for them.
“If it’s work that you really want and want to keep—even if you recognize that the work is not profitable right now—you can afford to invest in it for longer-term goals,” Nitzkowski says.