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By Kim Tasso
There is much talk of pricing in the legal profession at the moment. And, it seems, a fair amount of confusion. Somewhere along the line, lawyers have equated pricing strategies and fixed fees with the demise of the billable hour and reducing profits. It isn’t necessarily so.
It’s all about the client – their need for transparency and certainty
Imagine booking tickets for a flight. You don’t want an open ended price – one that is dependent on how many other passengers are likely to fly, how much luggage you might take, how much fuel might be used and the impact of the head winds! No! You want certainty – less risk that you will end up paying more than you can afford.
You want to see a range of options – which airport here, which airport at the destination, whether you are flying standard or club class and, probably most important, the dates and times of those flights.
So while legal clients may not want to see open ended billable hour estimates, they might be quite happy looking through a list of options and choosing the service, with or without extras, to pick their preferred price point.
It’s still all about the client – their perception of value
Some clients will need to get to a particular destination urgently – and so the price will not be a major concern – they just need to be confident that they can travel when they need to. Others will be much more budget conscious and will seek out the lowest possible price regardless of a host of other factors.
So they also have rather different views of the value of that flight; some may be prepared to pay a premium to get exactly what they want and others may demand the lowest possible price. So, are you a budget airline or a luxury corporate jet?
And remember, despite the fact that there are hundreds of airlines advertising cheap flights (just as there are hundreds of law firms offering super-cheap legal services) – and therefore anchoring price at the low end in the minds of consumers – there are still a huge number of people who pay significantly more for their air travel.
Identifying different markets and services
So your approach to pricing is likely to be different depending on whether you are in the cheap as chips commodity market of low value and high volume consumer legal services or in the corporate world where smart general counsel are holding the purse strings – ably supported by their procurement professionals.
Paying heed of course to your overall business strategy and brand, a first step in any pricing exercise has to be careful research into the market and segmentation – a focus on the particular groups of clients that you are serving, an understanding of their particular needs and insight into where they perceive value.
In pricing, there is rarely a one-size-fits-all solution.
Value proposition development instead of cost-plus billing
The next stage is to be clear on your value proposition, and this means stepping away from the traditional cost-plus approach to billing. What is it that clients really value and how much are they likely to pay for it?
While lawyers may be focused on their internal costs – how much lawyer time, how much investment in know-how systems and technology, how much paralegal and support time etc – clients are focused on the value of the service.
Yes, the quality of legal advice is important. But then so is the service experience and the relationship. And the outcome. And how important it is to achieve a particular result. And the way you might achieve that result. And when. And peace of mind. And the reassurance of using a firm with a particular reputation. Or of being associated with a particular legal (or other) brand.
Of course, you need a team of financial experts keeping an eye on how much it costs to provide the service, and the profit you generate, but the cost should not dictate the price. It is but one element. And, heavens above, you might have a price that generates a superior profit to when you use the usual billable hour approach.
Confident communication about price
The way in which you communicate price is important. You must provide transparency and explain exactly what is and isn’t included and the benefits of your particular service. And this needs to be done whether the information is presented publically on your website or by your lawyers and support staff handling enquiries and fee negotiations.
Technology and project management to the rescue
At the other end of the spectrum, imagine you have to provide a fixed fee for a multi-million pound international litigation case. You will need the sorts of technology systems and project management expertise that you see in the Big Four accountants who are used to pricing up such massive projects. They do it every day. And the variables on a major consultancy assignment can be even more numerous than on a significant legal case.
Look at the eye-watering profits of US firm Quinn Emanuel – and they do it mostly on fixed price arrangements.
Once you have committed to a fixed fee you’ll need to ensure that all the lawyers working on the project will be able to keep the project on track and within the agreed budget, otherwise you will leech profits.
In these situations, law firms are taking on all the risk – rather than leaving it to the client. And there needs to be a financial incentive to accept that risk. But that’s covered in your pricing, isn’t it?
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