In a new survey by BigHand, the spotlight is on the pressing issues of pricing and budgeting in law firms, revealing a significant disconnect between what clients seek and what is currently being offered. The comprehensive study, which gathered insights over five years and included responses from approximately 800 senior legal finance professionals across the US and UK, underscores a growing client demand for budget adherence and financial transparency.

Clients are increasingly vocal about their needs: 47% of the surveyed firms noted a rise in demand for budgets, 50% cited a call for greater transparency, and another 47% highlighted a preference for more alternative fee arrangements (AFAs). Additionally, 48% of law firms reported that clients are pushing for more technology-driven efficiencies.

Despite these clear client preferences, law firms seem to lag in meeting these expectations. While 53% of firms mandate budgets for most, but not all, matters, only 37% actively budget based on direct client requests. Surprisingly, 70% of firms admit to seeing increased billing realizations when they do implement budgets. However, only a scant 4% of firms provide continuous budget updates across all budgeted matters, with just over 30% updating clients in 21-40% of cases.

The reluctance to adopt a more structured budgeting process may stem from a lack of proper business training among lawyers. Only about 30% of firms offer formal training on financial management and performance metrics, which are crucial for running a successful legal business. This oversight can lead to suboptimal financial outcomes and strained client relationships.

Many lawyers resist detailed budgeting as it requires a high level of accountability. The common practice involves estimating the number of billable hours a matter might take, often with added padding for leeway, which does not necessarily align with actual costs or client expectations. This approach is compounded by the fact that less than half of the firms use dedicated pricing and budgeting software, which could enhance data-driven decision-making.

Alternative fee arrangements also represent a challenging front. Most AFAs continue to be estimated just like traditional budgets, based on guesstimated hours and a cushion that often proves unrealistic. This results not only in exceeded budgets but also in dissatisfaction due to unmet client expectations regarding costs.

The BigHand survey serves both as a wake-up call and as an opportunity for law firms. Those willing to align more closely with client expectations and invest in robust financial practices and technologies stand to gain in terms of client satisfaction and profitability. The survey highlights a significant gap but also points to a path forward for firms ready to embrace change and tackle one of the legal industry’s most pressing challenges.