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Behind every great law firm is a team of professionals working hard to keep operations running smoothly. With the challenges of staying on top of complex billing requirements, managing time reports, and navigating constantly shifting industry trends, it’s easy to see why most firms write off millions in uncollected revenue each year.
To help your firm stay in the green, we’re introducing Studio A, a new podcast from Aderant.
Studio A is purpose-built to help you run your firm like a well-oiled machine. In each episode, legal business leaders and industry experts will share problems firms face and the revolutionary approaches and cutting-edge software they use to solve them. Because ultimately, in the business of legal firms and the ever-evolving world of technology, you can’t afford to fall behind.
Richard Burcher (00:00):
We distribute cash. We don't distribute top line revenue. We don't distribute billable hours. If there are no drawings this month, it's because there's nothing in the kitty. So actually getting paid and turning it into cash, work to cash is now absolutely crucial. And as margins become more and more squeezed, this becomes even more crucial, I think.
Will Ayers (00:22):
Behind every great law firm are bold leaders and powerful solutions that help them run a better business. Welcome to Studio A, the home of legal tech innovation. Welcome to Studio A Power by Aderant, your podcast for the latest conversations shaping legal tech. I'm your host, Will Ayers. Today we're talking about profitability, not a reporting outcome, but as an operating discipline. As AI reshapes how legal work is delivered, the link between time, value, and margin is changing. And that raises one critical question. How do law firms ensure that pricing intent actually aligns with execution and financial results? So today I am joined by Richard Bercher, founder of Virtual Pricing Director, and one of the legal industry's leading voices on pricing strategy. Now, last year, Aderant acquired VPD. So now Richard is a part of the Aderant family. Richard is now the VP of pricing and profitability at Aderant.
(01:35):
Richard, how are you doing today?
Richard Burcher (01:36):
Hey, Will, always good to catch up with you and have a natural about all things pricing and profitability.
Will Ayers (01:41):
Now, I'm excited about this conversation because you provide a level of expertise that is respected around the industry. You've said firms don't have a pricing problem. They have a pricing and profitability execution problem. What's the difference in that? It's
Richard Burcher (01:58):
A good question. Firms know how to price. I mean, they have rate cards, they talk about AFAs, they negotiate, they conduct or participate in responding to RFPs and so forth. So firms would say we have no difficulty setting a price. Whether that price is right or not is a moot point. But the real problem is what happens when the price is set. And that's where it tends to go off the rails. And hopefully we'll have an opportunity to talk about write-offs and that sort of thing at some stage during this chat. But essentially pricing is treated as an event rather than a process. So they do that at the beginning and then forget about it. It's that whole execution phase where there is massive room for improvement, which will benefit clients and firms. So it's an execution problem, not the front end problem of actually arriving at the fee.
Will Ayers (02:52):
Now, leakage is a term that's used in the legal industry. It's something that occurs even with firms with strong pricing teams. Where does profitability typically leak in a law firm?
Richard Burcher (03:05):
All through the process, Will, I actually use a slide in our pricing masterclasses, which refers to waterfall discounting. So life begins as a standard fee, full rates or whatever the case may be, and then it gradually dies a death all the way through the life cycle of the delivery of the work, ranging from the initial discount that's given to keep a client or a prospective client happy. Everyone kind of expects some time to discount these days. Then there is poor time recording, then there is moral editing of time records on the way through. And what I mean by that is people going, "Well, the client won't pay this anyway, so it's pointless recording my time. I'll just put the brakes on. " Then they do a pre-billing discount because they get a time printout and think, "Oh, goodness gracious, that's got away from us. The client won't be happy." It goes out to the client.
(03:53):
The client looks at it and says, "Well, that's more than I was expecting. Can I have another discount, please?" So it just dives a death all the way through the life cycle. And the cumulative effect of that, all of which comes off the bottom line is dire. Last year, we did a back of a napkin calculation based on published figures. Last year, the AmLaw 100 wrote off approximately 20 billion, that's with a B, not an M, $20 billion worth of recorded billable time. The UK top 100 wrote off somewhere between five and six billion pounds of recorded billable time. And those numbers come from that waterfall dynamic, leakage dynamic that I just described.
Will Ayers (04:39):
Now, love firms are losing billions of dollars. So that means that this margin erosion is pretty much a normal thing or almost an expectation for firms. Why do you believe that firms are used to this occurring all the time?
Richard Burcher (04:54):
Ironically, it comes back to the billable hour and the absurdity of selling or thinking we're selling six-minute units. No client ever walked into a lawyer's office and said, "Hey, I'd like to buy 100,006 minute units, please." We might come back to that later in the conversation. But the fundamental problem is that there is an artificially imposed ceiling, which is a function of A times B equals C. There are only so many hours in the day, there are only so many hours we can realistically expect people to work. You multiply that by an hourly rate and you have a theoretical maximum that's capable of being generated short of having more people recording billable time, hence the leveraging gearing model. That focus means that you can only ever come down from that. So that's the ceiling. Everything else is a rifle. Firms have adopted the view that there's only one way in that south, and the only thing we can do is to minimize that level of write-off.
(05:49):
But if we shift the focus to profitability rather than revenue, then it's quite possible, for example, with fixed fees, it's quite possible, for example, to deliver a piece of work with $30,000 worth of time on the clock. But if there's an agreed fee of 35 or 40 and the client pays that, then you can actually end up with more than 100% recovery or realization. There is a baked-in inevitability in the current model, the current paradigm, which says there's a maximum, which is an arithmetical calculation, and then we simply lose from there.
Will Ayers (06:26):
At what point did you realize the issue wasn't pricing sophistication, but the lack of integration between pricing and execution? Because I think that's an interesting point as well.
Richard Burcher (06:36):
Yes, it is. It goes back to my point about pricing being seen as an event rather than a process. You ask most lawyers like myself, we don't generally like doing pricing. It's administrative. We may even accept that we're not particularly good at it or confident around it. It's seen as a regulatory and compliance issue, a box ticking exercise. And frankly, that's not what any of us went to law school to do. It was to engage in cerebral, interesting and challenging work. So we have very much treated it as something that you have to do at the beginning of the job and then get on with the important stuff. That is where it breaks down. It basically is a function of the fact that we take the eye off the ball for the remainder of the project or the matter. And in fact, pricing should never leave our thinking because we need to keep pivoting, updating the client, recalibrating the scope, altering the resourcing as we go through.
(07:36):
It's a dynamic process, but we've treated it as a one-off.
Will Ayers (07:40):
Now you've mentioned pricing as an event versus pricing as a managed discipline. Does that require a cultural shift just as much as a system shift?
Richard Burcher (07:50):
Yeah, very much so. In fact, it's probably one of the most challenging things to actually execute on because, and again, I can speak from experience as a former 30-year practitioner and a former managing partner. I know the mindset and I have a certain way of doing things. And so you are now telling me that I basically have to constantly monitor this and so forth. And that is a challenge to change fundamental behaviors and ways of thinking about how we deliver the work and how we monetize it. That's aggravated, unfortunately, and many firms are realizing this and are doing something about it now. And that is that there is a piece of lawyer's training and particularly partners training that has had little, if any, attention. And that is what I would broadly characterize as commerciality and financial literacy. I don't say that pejoratively. It's not our fault because most just simply aren't taught at any stage of their career, whether formally at law school or indeed on their journey through the firm's ranks.
(08:52):
But if we don't understand how a firm makes money and loses money, then that is a problem. You can't build pricing capability on top of someone that doesn't understand that a 10% discount at the front end of the job is probably hitting the bottom line to the tune of 30, 35%. That's a problem that firms are beginning to grapple with increasingly.
Will Ayers (09:13):
We can't talk pricing without talking work to cash. Law firms and legal professionals, they want to get paid on time. And I think historically work to cash has been seen more as a operational thing. Now in today's world, today's industry, it's more strategic. How does work to cash become the bridge between pricing, execution, billing, and paid outcomes? Because that's very important as well.
Richard Burcher (09:40):
Work to cash is a brilliant concept. It was one of the things, frankly, that really appealed to me when Chris Katrie started talking to me about a possible acquisition of virtual pricing director. I thought it was an inspired approach to running a law firm because all stages of the delivery of the work and the pricing of the work and the recovery of that remuneration are critically important. And historically, you're quite right. Historically, some of that other stuff has been seen as back office, operational, and certainly from a lawyer's point of view of no interest or concern to me whatsoever. My job is at the front end to do good legal work, end on. But increasingly, best performing firms are turning that around a little bit and saying, yes, that back office function can support you, but fundamentally, you as the partner are the driver of the profitability of the work that you are delivering.
(10:33):
In fact, we expect you to ensure that it's profitable. We aren't going to expect you to manage the whole of that work to cash cycle, but we do expect you to do the bits for which you are best suited. I would characterize it well as a increased commercialization and professionalization of the running of a law firm. Back in the day, I mean, my career started in 1980. We didn't even have computers, let alone AI-driven, automated time recording. If you thought to record any time at all, it was on a bit of paper, which you then lost. We had a very, what I would call, an artisanal view of the delivery of our services. We just come in, we do good work, we manage the relationship. The rest kind of happens somewhere out the back. We get paid whenever the client feels like it. We don't want unpleasant conversations with them.
(11:19):
And so now you've got firms that are run and have been for some time, particularly the bigger and more sophisticated first, running it like a proper business, managing the entire flow from beginning to end. The message for partners is a simple one, and that is particularly for equity partners. And I used to find myself saying this in my own firm, we distribute cash. We don't distribute top line revenue. We don't distribute billable hours. If there are no drawings this month, it's because there's nothing in the kitty. So actually getting paid and turning it into cash, work to cash is now absolutely crucial. And as margins become more and more squeezed, this becomes even more crucial. I think one of the things is that we have allowed ourselves to be a little bit slack. The kind of margins that law firms enjoy, the aviation industry at an average margin of 3.7% and the supermarket industry at a margin of 2.2% would think they died and gone to heaven if they had our margins.
(12:21):
So I think unfortunately it's bred a degree of complacency, but when you operate on narrow margins, every dollar is a prisoner. Now for
Will Ayers (12:31):
Firms that say, we already have a strong financial reporting system, what are they missing if their current systems are not integrated across the lifecycle similar to the example that you just gave?
Richard Burcher (12:46):
That in a nutshell, you've just summarized one of the three key reasons I said about building virtual pricing director. The reporting historically has been retrospective. So you get a report in three months time after you've closed a deal telling you that the gross profit margin was awful. The resourcing was all over the place. There was terrible scope creep, which you did nothing about. I'm afraid that's of limited use to me other than an opportunity for someone to chastise me and encourage me to do better next time, which is fine, but of limited value. If you go back to this idea of managing the delivery of the work, I need to know in real time, I need a dashboard. I need mission control Houston telling me, sending me an alert as VPD does, that says there is anticipated scope creep on this matter. You may wish to review time entry such and such.
(13:40):
And alerting me, if I'm managing a team or an entire department, alerting me to the fact that one of my senior people has a job that's going off piece and has blowing the budget, and I might want to intervene to assist them to reengage with the client rather than having that very difficult conversation and an inevitable rifle for the end. I want to know budget versus actual and real time on my matters. I want to know gross profit margin or contribution margin on my live matters in real time so that if need be, I can pivot. Knowledge is insight and insight is power. So if I see something going wrong, I have options available to me. I can have a look and say, okay, there's too much partner time on this. We budgeted 20% partner time, it's 50% partner time. We can pivot and iterate.
(14:32):
We can delegate more of the work. We can perhaps go back to the client and have a talk about scope creep and what that's doing, and can we agree on a revised framework or do you want us to stop working on that aspect of the matter? But it all assumes timely, relevant insights, particularly for the lawyers. I characterize that as the fence at the top of the cliff instead of the ambulance at the bottom.
Will Ayers (14:56):
I love that. I love the way you coined that. And today's world, today's environment, legal environment, AI is at the fingertips of every legal professional, every law firm, and is essentially a clicker way. And you talked about getting those insights pretty much on demand and an AI-enabled delivery environment, why is a connected work to cash ecosystem so important?
Richard Burcher (15:26):
I suppose there are a number of reasons that perhaps the primary one is because the delivery of the work is now taking on a hybrid paradigm. We've always had technology of one sort or another, even if it was typewriters, as opposed to goat skin and quill pens. So we've always had technology with a temporal arc of some 45 years in my case, I've never seen anything like the kind of disruption we're experiencing now through technology. And that means that everything from the delivery model to the pricing model is going to have to change. So the work to cash philosophy respects the fact that AI is going to impact every part of that work to cash cycle. So from the delivery of the work to how it's priced, how AI can be deployed in the business of law, which is as opposed to the practice of law, it's going to reach into every aspect of that cycle, that work to cash cycle.
(16:29):
So the smart firms are stepping back and really kind of challenging and questioning every aspect of that phasing of work to cash and saying, what role might AI be able to play in each of those components in order to produce a better outcome for the client and a better outcome for the firm?
Will Ayers (16:51):
I've heard you mention before about AI breaking traditional moles and traditional links. AI does break the traditional link between time spent and value delivered. So what does that do to margin assumption?
Richard Burcher (17:07):
That's the question that's keeping every law firm, senior management team awake at night around the world. I've worked with more than 300 law firms in 30 countries, and if there's one shared anxiety, it is that. The fundamental economic structure of a law firm is under threat. I think there's a lot of hype and a lot of noise and hot air and so forth. I don't think this calls for panic, but there is certainly no cause for complacency. And I think that law firms are, those that are grasping the nettle and recognize it for what it is are the ones that are going to succeed and come out on top in the end. I think AI is both a tremendous opportunity and a tremendous threat to our current operating model. I tend to be a glass half full sort of person, so I'm seeing all the upsides and the opportunities.
Will Ayers (18:00):
Now, if AI is able to accelerate capabilities, in some instances it can make time no longer be the anchor. So if time is not the anchor, what replaces it as the foundation for pricing confidence?
Richard Burcher (18:16):
Yeah, really good question. And I presented on this in London recently to a group of partners tonight next week. I'm doing the same to a great group of firms in Chicago and New York, which I'm really looking forward to. But it goes back to a fundamental misunderstanding or something we've forgotten. And that is that time recording serves two purposes. It is a management tool that enables firms to understand margins, utilization, capacity, and all sorts of other things without which we're flying blind. We're making decisions without core information. And then the second function traditionally has been to use time recording as a pricing tool. Those two functions have become conflated and have left people very confused. So it'll lead to, for example, to people saying, "I've agreed to do this on a fixed fee. Why do I buy the time recording?" Kind of missing the point that it still provides the management information, even if it's no longer a relevant pricing tool.
(19:13):
What is going to supplant that? Nothing is going to supplant it from a management info point of view. Time recording, I believe, will continue to remain essential for those management reasons, but what's going to replace it in terms of pricing? It won't be replaced completely. There are areas of work. I tend to think of partners needing a pricing toolbox, a range of pricing techniques and methodologies that they can deploy in a given situation for a given client, depending on what's optimal. And the billable hour will remain forever as one of those tools. The change that will occur is that the lawyer's pricing skillset and repertoire or vocabulary is going to need to expand to cater for those situations where a billable hour model is not going to work for that client or that matter. And they say, "No, that's not an option. What else have you got in your toolkit?" So there's a real educational piece and professional development piece around that, which is one of the reasons why Andrew and senior leadership team were so keen to bring on not only virtual pricing director, the software, but also our entire consulting operation validating because there's a recognition that these changes are going to require a holistic approach of people, process, and technology to underpin and reinforce it.
(20:36):
So the magic word going forward is going to be value. We are going to have to get a whole lot better at value pricing, which begs the question, I always get asked this, "Well, what on earth does that look like? Just think of a number and hope that the client thinks it's okay." No, that's not value pricing. We again have to get better at doing something that we used to do when I started in practice, and that is actually ask the client what they want, what they need, why it's important to them, understand the broader context. Is this a piece of work, business as usual, or is it better the farm work? What are the consequences of a good outcome or a bad outcome from your point of view? In other words, there's going to be a much more robust and structured interrogative at the beginning of the job that has arguably nothing to do with the legal work, the black letter law and commercial work.
(21:27):
It's about understanding the client's perception of the value of what we're being asked to do for them. And only with that context can we then set about pricing it, scoping it, pricing it, resourcing it in a way that aligns with the client's expectations. This has nothing to do with discounting or giving the work away or doing $100,000 worth of work for only 50. It's got nothing to do with that at all. Quite the opposite. But if, for example, a client, in my view, I would like to do a $100,000 job because I like to deliver the gold plated version every time I get my hands on a client's matter because it's a matter of professional pride to me. And I'm also concerned that if I don't do that, I might miss something giving rise to negligence, liability issues. So I'm sorry, I'm always going to do the gold plate inversion.
(22:13):
But if the client says, "Well, look, I don't want it. I don't need it and I'm not going to pay for it, " then we have to get better at saying, "All right, well, if your budget's 50,000, let's see what we can do for you that ticks as many boxes as possible for 50,000." And we're just not good at that at the moment.
Will Ayers (22:29):
Now you talked about the acquisition, Aderant acquiring VPD, and I would love for you to lean into that a little bit more. When Aderant acquired VPD last year, what made that combination strategically compelling for you and your team?
Richard Burcher (22:48):
Yes. Well, we had had, prior to that, a number of approaches from other organizations about potentially acquiring us, and we were of a mindset that it was probably a good time to follow through on that. We'd got to a point where we were getting interest from some of the largest law firms in the world, and realistically, we were a startup, and although they absolutely loved the product, we didn't have the corporate hest and peace of mind that comes with a big organization like Aderant. So the timing was right. We weren't interested in just joining at the hip with anybody. We wanted it to be somebody who shared our vision for this aspect of the industry. And my discussions with Chris and the senior leadership team ticked those boxes. So for example, I loved, as I said already, I loved the work to cash philosophy. It very much aligned with our own thinking in that regard.
(23:48):
There was also a very early recognition that this kind of change or transformation requires that holistic people, process and technology approach. And whilst Aderant had traditionally been a technology provider only, there was a vision to credibly provide world-class consulting services by bringing on Validatum and our entire consulting operation as well. So for the first time, and the only organization in the market that can credibly offer this, so we can come in and provide you with the end to end. We can help you with pricing governance. We can help train your partners at a world-class level, and we've got the technology that provides the framework that allows you to implement pricing best practice and embed it operationally across the entire business. That was key from my point of view. It ticked all the boxes, and here we are.
Will Ayers (24:45):
We are excited to have you on this team, and I think it's just a testament to all of the great work that you and your team have already done. So integrating all of the great technology from VPD and to the work to cash suite is definitely going to take law firms to the next level. I have two more questions for you, Richard. Five years from now, what will distinguished law firms that prioritize pricing discipline within work to cash from those that didn't?
Richard Burcher (25:13):
Oh, that's great. You say one of the easy ones to the end. It's simple. The difference will be that some firms will reliably convert agreed price into realized profit and cash and others won't. The distinguishing features or factors, characteristics will be margin stability versus margin volatility because the whole process is being managed. Cash velocity versus cash drag. In recent times, lockup, work and progress and debtors has been a huge problem for firms. There's been some improvement in that as a result of applied effort, but at the end of the day, cashflow is everything to affirm. There's not much point sitting on the balance sheet that doesn't do anyone any good in terms of paying the bills. You get more robust behavioral alignment with partners understanding the direction of travel and willingly submitting to some guardrails around pricing behavior in terms of some things requiring authorization, be it write-offs or discount to rates and that sort of thing.
(26:12):
So you have governance at the level that's commensurate with that firm's culture. You have more active portfolio management instead of partners doing their own thing. Commercial capability becomes more pronounced. So you get firms investing in the commercial and financial awareness development of partners so that they can play a more proactive role and understand why things need to be done and can be done a certain way. What I would say is that some firms will utterly and completely professionalize the process and others will remain ad hoc, spontaneous and disconnected. And I worry for those firms, frankly, because they're going to slip back quickly.
Will Ayers (26:58):
Now, before we close, if you were advising managing partners listening to this episode, where should they begin?
Richard Burcher (27:06):
I would recommend they get some outside help. Even firms, one of the wonderful things that I really enjoy is I have wonderful relationships with a lot of, and most, if not all, of the leading pricing professionals that currently operate in law firms. We don't pretend to have all of the answers, but we're always delighted to share our experiences with those teams. Even if you have a pricing team, sometimes an outside perspective can bring fresh eyes to an issue. If you don't have any kind of pricing team or pricing capability at all, then it's worthwhile starting to think about that. The pricing function within law firms has grown dramatically over the last 10 years, and I think that's a fantastic trend. There is an increasing recognition that pricing is a skill and a discipline, and professionalizing that role within a firm can add enormously across the whole business, not just in terms of finances, but in terms of managing clients, relationships and client satisfaction and so forth.
(28:08):
So one sentence, I suppose, start to take seriously the professionalization and sophistication of pricing within your business and watch the results.
Will Ayers (28:21):
I love it. I love it. I love it. Richard, we have to have you back on studio again. This conversation has been very meaningful, very impactful, and I'm pretty sure legal professionals around the world will be tuning into this episode to hear everything about pricing and profitability. You got to promise to come back next time we got to do it in studio, so we got to get you to Atlanta.
Richard Burcher (28:42):
Fantastic. Yeah. Well, open invitation for you to send an invitation. Well, always, always key. It was great to be in Atlanta recently. Very, very happy to be welcome back again. Let's see what we can do.
Will Ayers (28:55):
We'll see what we can do. I'll try to work on getting that invite sent.
Richard Burcher (28:58):
Good on you.
Will Ayers (28:59):
Thanks, Richard. If there's one clear takeaway, it's that pricing can no longer stand alone. It must be embedded across execution, billing, and outcomes throughout the lifecycle of work. Thank you for joining us here on Studio A. You could check us out on all major streaming platforms for the latest conversations shaping legal tech. Thanks for listening to Studio A. For more from this episode, visit adorant.com. Be sure to subscribe so you never miss a beat, and we'll see you next time in Studio A.