Money, Technology

Optimal Pricing Of Legal Services And Big Data

Big Data is an important driver of success in law, and attorneys ignore it at their peril.

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big data center with serversSome attorneys like to see their profession as one of the last bastions of tradition and decorum – a world where technology changes are of secondary importance behind serving the client and providing excellent representation. For evidence of that view, one need only look at the websites (or lack thereof) of many small law firms, and the reluctance with which some attorneys even use email. Yet, like it or not, technology is changing the legal profession, and a business called Lawyer.com is a great example of that.

Typically, my columns center on higher finance and its interaction with the law. But it is useful to remember that the core of the legal industry is still about identifying people with a need for legal help and serving those clients. Higher finance is sometimes a tool to meet that need, but for most attorneys, hedge funds, private equity, litigation finance, and other investment topics are not part of their day-to-day business. But serving the client, setting pricing, and finding a place in the market are. And that’s what Lawyer.com has built its business around. The success of Lawyer.com shows that Big Data and Business Intelligence are important drivers of success in law, and attorneys ignore these concepts to their own detriment.

I recently became interested in how Lawyer.com is using Big Data and related statistical techniques to help lawyers enhance their business, so I talked with the CEO of the firm, Gerry Gorman, to learn more about the company.

For those who aren’t familiar with Lawyer.com, the company is built around a web portal that matches people who need specific legal services with lawyers who provide those services. It sounds simple, but the reality is that finding two to three appropriate lawyers to connect to one potential customer is more difficult than one might think. Clients are generally looking for specific types of legal services, covering anything from class-action suits to personal injury, and they have specific geographic preferences, cost preferences, and human factors that influence the best lawyer for them. Lawyer.com has to take all of this into account to match prospective clients with a couple of attorneys from its database of more than 2 million professionals.

Lawyer.com is interesting from a general perspective in that it essentially shows the power of data in the legal space. The firm is profitable and growing rapidly, with annual revenues of around $4 million at this point. The whitespace that is not yet being exploited by Lawyer.com or anyone else, though, centers around two factors: price optimization and services targeting.

Lawyers traditionally set an hourly rate and in most cases use that rate for all clients. Occasionally, however, if a client has a particularly high willingness to pay, the attorney might charge a higher rate. Uniform pricing across clients is not efficient, though. Lawyers should be charging different clients different hourly rates based on the value of the services to each specific client. Doing that kind of price optimization is hard with a traditional legal business, but with specific data like that derivable from Lawyer.com, more effective pricing is certainly feasible. A good example of effective price optimization is Google. The website charges different costs for the same advertisement based on characteristics of that advertisement – primarily keywords used.

Lawyer.com is actually guilty of the same sin of inefficient pricing – the site generally charges the same fees to all attorneys, regardless of their area of focus or geographic area. In an effort to be lawyer-friendly, the site charges $119 per month, and says that attorneys get a return on that investment of around 5X. In some super-high-cost areas, like New York and Los Angeles, attorneys may opt for a premium service that costs an additional $300 per month, but those areas are limited. Like the attorneys it serves, Lawyer.com is using a suboptimal pricing model and leaving cash on the table.

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In addition to the data that is relevant to pricing, Lawyer.com also has data that is very useful for identifying the level of demand for various legal services in different markets. The traffic to the site based on keyword searches off Google and the location of users gives a live in-depth picture of demand for legal services in different markets. In theory, this kind of data can be used by attorneys to figure out how to tailor their own marketing, what level of marketing spending to incur, and what services in their market are most lucrative. Lawyer.com does not currently make this data publicly available, though it is possible that may change in the future.

Broadly speaking, the legal profession has not been great at using data to its full potential thus far, but there are some indications that this is changing over time. Lawyer.com is a good example of building a service around targeted Big Data. Only time will tell what the future of technology and the law will hold.

Michael McDonald is an assistant professor of finance at Fairfield University in Connecticut. He holds a PhD in finance. Michael consults extensively with organizations ranging from Fortune 500 companies to start-up businesses on financial matters through Morning Investments Consulting. Michael has served as an expert witness in legal disputes, and is an arbitrator with the Financial Industry National Regulatory Authority (FINRA). Michael can be reached at M.McDonald@MorningInvestmentsCT.com.

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