Is the legal industry a buyer’s market or a seller’s market?
Legal market analyst Jordan Furlong recently released a groundbreaking guide to creating a client-centered law firm, titled Law is a Buyer’s Market. In Furlong’s view, a combination of economic instability and technological advancement has already created a new landscape for the delivery of legal services.
Furlong points out that software that assists in document-intensive practice areas (such as bankruptcy or immigration law) has already changed the practice of law. These tools act as partial substitutes for lawyers and are nearly indistinguishable from them when it comes to completing formulaic tasks—not to mention, they’re also much cheaper.
Furlong predicts that, as similar innovations come to the legal market, firms will fail if they do not change to serve clients more efficiently.
Ultimately, we agree with Furlong that the market for legal services is changing. If that is true, then the law firms that have organized themselves to succeed in a buyer’s market—those that have created a client-centered law firm—will be best positioned for success.
Why law is still a seller’s market
Even though the market is changing, law is still very much a seller’s market. The industry has a long way to go before consumers are truly in the driver’s seat.
Economists would tell you that a buyer’s market is characterized by some of the following attributes:
- There are more sellers than buyers.
- Service is competitive, fast, and responsive.
- Risks of cost uncertainty are borne by the seller.
- Prices are consistent, transparent, and low.
- Buyers have some control over costs.
- Buyers have data about services and service providers.
- Charges and bills are clear and easy to understand.
Most clients would not recognize this list of “buyer’s market” characteristics in their law firm. There are many more clients than lawyers in the legal industry (i.e., more buyers than sellers), which is a problem that exacerbates the access to justice crisis. Lawyers may have to compete for clients, but very few clients have the capacity to compare law firms for service.
Furthermore, in the legal industry, information about sellers (lawyers) and what exactly they are selling is not readily available, unlike when you purchase other goods and services. In part because so much information is unavailable, products are not commoditized, and costs are not transparent. There is very little innovation in business practices, products, or legal advice among law firms.
The persistence of hourly billing is one of the strongest indicators that legal services are not yet a buyer’s market. Law firms have the most information about the areas of law in which they specialize. They’ve done this many times before, so they have information about similar matters: They know how long each case took to close, how much each one cost, exceptional risks, and the firm’s rate of effectiveness or success.
Despite this information asymmetry, clients bear the risk that matters will cost more or take longer than anticipated. Unlike other industries, there is no adequate force standardizing costs and standardizing a market for fees so that clients can compare outcomes.
We don’t say this to be critical of lawyers or law firms—we’re both lawyers, and we’re sympathetic to the ethical constraints under which lawyers practice. However, it’s clear from even this brief analysis that the legal services market is a seller’s market.
How Lawyers Can Succeed in a Buyer’s Market
Although legal services are not yet a buyer’s market, the market is moving in that direction, as Furlong points out. In a changing marketplace, firms that put clients at the center of their practices will be more competitive.
If you ask clients, they would be hard-pressed to distinguish one firm from another. Most law firms describe their practices in the exact same way—collegial, professional, having the highest standards of ethical conduct, and similar unquantifiable platitudes.
Even in a seller’s market, putting clients first is the surest way to differentiate your law firm in a way that matters for clients.
So what would a client-centered law firm look like? Here are six things you can do to make your firm more client-centered, therefore positioning it to succeed in the coming buyer’s market for law.
1. Be fast, responsive, and human
In a buyer’s market, sellers compete to offer the best customer support, and everyone benefits as a result.
When it comes to client relationships, law firms need to match, if not exceed expectations. That means simple things like proactive status updates, timely responses to questions, and answers that respect clients’ appetites for risk, rather than easy firm wins.
Legal services are a service industry. Our clients should know that we are qualified to give legal advice, but also that when they hire us, they are no longer alone—that we stand with them and face their troubles with them. We should let them know that, although their problems seem daunting, we have faced these problems (and worse) before.
In these situations, we must make it clear that we’re there to serve all of our client’s needs, not just their legal ones.
Humanity is at the core of any good customer relationship. It sounds simple, but clients have to understand that you are genuinely concerned about solving their problems with expertise and speed.
The types of legal problems that clients come to firms with are often some of the most important and stressful matters that they will ever have to conquer. Clients deserve clear and fast responses to all of their questions throughout the process—no excuses.
2. Be clear about cost
When it comes to pricing legal services, there are many variables outside of an attorney’s control, but clients should not be the only risk bearer when the unpredictable occurs.
Alternative fee arrangements (priced correctly) can increase client confidence and generate accountability by demonstrating that firms are willing to share risk. As a result of handling many legal matters, firms have more information than clients about the time, level of effort, and cost of given matters. They should, wherever possible, use that information to create transparent, fixed fees for routine legal matters.
In addition to making legal costs more predictable for clients, using fixed fees gives firms an incentive to innovate and to handle matters as quickly and efficiently as possible—If you’re not billing by the hour, profits are no longer tied to your time spent working. The more efficient your firm is, the more you’ll benefit.
Finally, during the course of a matter, when your firm makes decisions about strategy, settlement, cost, or risk, it is important to give clients a say in the decisions. Many firms consult only at the beginning or end of matters, but clients will understand their bills better if they are consulted about risk or cost tradeoffs throughout.
3. Have your client play a role on the legal team
Too often, lawyers expect their clients to play a small role in the legal process, even if their entire livelihood is on the line. They may be treated as a burden, or even a liability.
It does not make a client feel confident in their representation when they are only minimally involved. Attorneys need to understand and alleviate client concerns as their matter progresses, not just when they first meet.
This approach threatens to waste the contributions of clients, especially more sophisticated ones. Firms may benefit from their clients’ unique skills and knowledge. Why not take advantage of subject-matter experts with an invested interest in mutual success? Giving clients a seat at the table for important meetings or calls can go a long way.
4. Lower prices when you can
In a buyer’s market, competition drives businesses to become more efficient and lower prices for consumers. To succeed in this type of market, a successful law firm must innovate, share the cost benefits of their increased efficiency with clients by lowering prices, and show clients where and how they are getting better outcomes for less money.
As Furlong points out, mundane legal tasks that benefit from automation are quickly moving out of the hands of human lawyers. Clients will not continue to tolerate large, ambiguous fees for tasks that, for example, can be completed by document automation tools. Firms should leverage technology to complete such tasks quickly and responsibly, and prices should reflect the actual amount of labor required.
5. Give potential clients the data they need to make decisions
The type of information consumers have come to expect when shopping for most products does not exist in legal services: There is no spec comparison sheet, comparison of outcomes, or consumer benchmarking. As a result, competition in the legal industry becomes less meaningful, innovation is stunted, and consumers suffer.
In a true buyer’s market, clients would have much different information about legal service providers. They would be empowered to compare results, prices, consumer reviews, diversity metrics, competency certifications, and standards employed by their firms. Services like Avvo have already begun to empower consumers to a certain extent, but attorneys who want to succeed in a buyer’s market should be willing to provide transparent pricing and other relevant data upfront on their own websites.
6. Provide clear, client-friendly billing
In a buyer’s market for the legal industry, billing information would be simpler, clearer, and easier for clients to understand. Entrepreneur and lawyer Matt Homann has written about what a client-centered bill should look like, and his points include:
- Making the bill clear and easy to read
- Introducing one’s legal team and discussing what each person’s roles are
- Spelling out clear to-do items for the client
- Making the tasks readable and the prices transparent
- Giving a clear roadmap for what happens next.
Bills can and should feel like a quality part of the product (i.e., legal services) that your client is purchasing. This means investing some time in creating an attractive and readable design that is easy to scan quickly, while still providing a wealth of information for more engaged clients.
At its core a bill sent from your law firm should not be an invoice, but an invitation for a client to interact with their attorney. Tell your clients who did each piece of the work, summarize the items achieved, and offer space for client feedback. If there is a mandatory action you need a client to take (such as paying you), make the path to that action as clear as possible.
The Time to Prepare Is Now
Jordan Furlong’s book demonstrates that the legal services market has already shifted towards clients when it comes to routine and formulaic matters due to the free flow of information on the Internet, globalization, and new apps for justice. He makes a compelling case that the same forces that operate in the smaller end of the legal services market cannot help but move upmarket as well.
Law is not a buyer’s market—at least not yet. But a buyer’s market in legal services would necessarily be a client-centered one.
To clients, many firms look just like every other firm. It can be difficult to differentiate intangible goods such as expertise or legal advice. But a client-centered business model will look very different from other firms. Even in a seller’s market, firms that organize their businesses around clients will be more successful and competitive.