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Finally, there are unnecessary costs – waste. Costs in the first category should be prioritised and

even expanded where this will produce a greater return. Compliance costs must be maintained,

while all wastage should be cut back ruthlessly.

“Firms can then address what really is the crux of the issue – their fixed cost base. Law firms are

largely fixed cost operations, and this means that any fall in revenue (of, say, 10% - or £200,000 in a

£2m turnover firm with fixed costs of £1.6m) will unavoidably hit profits and drawings

disproportionately (in this example, by 50%). Fixed costs must be turned into variable costs through,

for example, flexible staffing contracts and outsourcing arrangements.”

Reducing unit costs goes hand in hand with a more flexible approach to pricing. The advance of fixed

fee pricing, often with contingency arrangements and add-ons where necessary, is one trend that a

number of respondents identified. Fixed fees simplify matters for the client and allow for

comparison, while for the firm they encourage fee earner efficiency and make analysing cost of

delivery more transparent.

For Professor Mari Sako, of Oxford University, this is a question of law firm business models. “The

billable hour is being questioned. Firms are using non-lawyers and machines to do fairly repetitive

work. There is nothing new here – there has always been a leverage model – but many firms have a

long way to go.”

The overwhelming majority of participants believed that the key to success in the next three to five

years lies with technology (see Chart 2). Better use of technology will promote efficiency and

contribute to the aforementioned reduction in unit costs. This is crucial for firms’ own profitability,

and for providing outstanding levels of service to their clients.

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