The one thing all employment law firms get wrong

David Johnston

David Johnston

The UK's authority on mapping governance, risk, compliance, regulation and legal services markets.

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It’s simple really; but important. They’re not alone either; accountancy firms are just as bad if not worse.

What they get wrong is pricing on fixed fee work, especially with bundled or packaged services for SMEs.

It is a good thing that they have all noticed the Peninsulas and Citations, the Ellis Whittams and Adviserpluses doing their thing. The Regulatory Consultancies almost always only do direct marketing, so you won’t see them unless you are really in their cross-hairs. They rarely do big PR pushes, high profile advertising or sponsorships. So for employment law solicitors, and especially employment law boutiques, it is important that they understand these disruptors.

But here’s the thing.

While most employment law teams now strategically nod to HR support in some shape or form, they also mostly try to offer a fixed price SME package. What’s so bad about that? Well, nothing; until you see that they rarely market it much if at all, and they universally underprice it.  It’s almost a touching belief that by simply putting a low price product out there will mean clients flock to it. It doesn’t work with new mousetraps, and it certainly has never worked with regulatory compliance services, let alone legal ones.

What pretty much everyone seems to get wrong is that they think Peninsula, Citation, Mentor, Avensure, etc are price players, low ballers, ‘bottom feeders’ if you want to be pejorative about it (and many solicitors still do). This just isn’t so. Sure, they will charge differently, and they manage a long term client relationship differently. They have the ability to use legal expenses to effectively lay-off cost spikes. But paying a High Street solicitor £15k over the 9-15month course of a tribunal case is no different to paying Ellis Whittam or ELAS £3-5k for three to five years. That the client is highly likely to stick with those two in particular after three years and buy other services too is instructive.

It is easy to see price competition as indicative of low pricing, but it is a mistake to assume that SMEs in particular only want ‘cheap’. The real fight in the market now is between high renewal conscientious clients (including SMEs) and low renewal high-risk clients. The former will pay £6-7k pa, the latter rarely over £2k, and on any normal metric these clients could be in the same industry, have the same number of employees and be located in the same town or region. The smart plays in SME HR are not aiming for the £2k and below clients (let alone the insurance plus and affinity group white label ones at sub £500 price points).

So what’s the point of a law firm having a branded ‘MyHRToo.com’ pitch? It’s not disruptive to any of the Regulatory Consultancies at all.  In reality, it simply confuses clients looking at the law firm’s retainer pitches. The hard economic fact is that the traditional law firms have been kicked out of the SME employment law and HR market. Trying to get back in with pitches to the most price-sensitive hotly-contested sector is fighting yesterday’s (lost) battle. There are better options; plenty of them.

Specialist boutiques and good regional teams have a chance to play to their brand strengths. Targetting existing high net worth client’s start-ups is one route that works well. These are typically high growth start-ups with volatile staffing issues, often in niche industry sectors. Good advisors can charge premiums here, even for what are technically micro or SME firms.

The lesson for law firms is that price is not the issue – especially low ones. Fixed fees – genuinely so styled – remain critical. Disruptive and dislocating plays are all now focused on the clients that will pay £12k, £25k and even £75k pa. Here the fact that you have good quality advisors is taken for granted. The buyers will typically be professionals too, often GCs or IHLs now, and they’ll want to know what technology you deploy. These are the issues that matter. Nods to the old SME mass market are frankly futile and distracting for most.

David R Johnston is the author of the nedLegal Employment Law Boutiques Due Diligence Review.

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