Tag Archives: Pricing

Your pricing can set you apart

Most law firms still price by charging on a strict time spent basis, with invoices detailing work done by each fee earner and the rates applicable, or where the firm believes it appropriate, on a fixed fee basis. But is that what clients want?

What clients really want is:

  • Real efforts to reduce production costs. In other words, to move away from a cost-plus mentality;
  • Greater cost-consciousness – ‘spending’ our clients’ money with care, as if it were our own;
  • More pricing and payment options;
  • Greater client involvement in the pricing aspect of the relationship;
  • Greater pricing transparency;
  • Greater pricing certainty and budgetary predictability – ‘no-surprises';
  • Greater correlation between price on the one hand and the perceived value of the results achieved on the other hand.

By adopting a new approach to pricing which puts the client’s needs and value delivered at the centre of the pricing conversation (a) much tension is removed from the pricing process and (b) the firm will be doing something that few if any of its competitors are doing.

The process begins, counter-intuitively, with the client, not the service to be provided. The lawyer needs a clear understanding of what is important to the client and what they are happy to pay for, what is less important to them and for which they would prefer to pay little if anything, the extent to which they wish to assume price risk or prefer the firm to do so or whether they want to share that price risk. From there, the firm can quickly develop pricing choices for the client to select from.

And that is key here: clients have made it clear time and again that they much prefer to be given choice rather than being presented with a single option. The options might include:

  • fixed fees for the entire case and/or stages of the matter;
  • abort and success fees;
  • bundling/unbundling;
  • gold, silver and bronze services,

and so on.

The list of alternative fee arrangements available for an innovative firm to use is surprisingly long! The important thing to bear in mind is that whichever option the client chooses and however the particular matter plays out, the client needs to feel that they have had good value and the firm needs to feel that it has been paid properly.

With the vast majority of law firms struggling to differentiate themselves from their competitors, some go-ahead firms are finding that an innovative approach to pricing really can set them apart.

Nigel HaddonimagesUD5R2LBC

Pricing Consultant

Burcher Jennings Pricing & Costs Consultants

www.burcherjennings.com

So, what are we going to do about pricing?

Although lawyers are generally highly effective negotiators on their clients’ behalf, many are less good at discussing their own fees with those same clients. This is due to a number of factors. First, the all too easy use of hourly rates and occasional fixed fees was rarely challenged by clients, who until the last recession weren’t powerful enough or ‘savvy’ enough to ‘push back’. Second, when clients did start to push back, lawyers felt awkward or embarrassed or simply that they had to capitulate and take the fee the client was willing to pay. And that awkwardness had and has its roots in a lack of training in pricing skills, resulting in a lack of confidence in negotiating with clients.imagesZ4O29889

If a firm, and all those lawyers within it who have pricing conversations with clients, learn pricing skills, practice those skills and master them, then there is no doubt but that both the law firm and the client can benefit. Lawyers leave less on the table, and clients benefit from greater choice, transparency and control.

Firms often know that pricing is something that they need to address, or at least would benefit from addressing but aren’t quite sure where to start. Managing Partners often bemoan the fact that they have had a couple of attempts at implementing change from within but have been met with indifference if not resistance.

So, where might you start?  There are broadly speaking three areas you need to tackle; the list under each heading below being anything but exhaustive, they are:

1. Pricing governance and policy:

  • Each firm needs a shared and consistently implemented strategic approach to pricing
  • Pricing policies need to be well understood and universally enforced – for example do you have firm wide policies about what is written off, by whom, for what reason and up to what level?
  • Price and market position disconnect – most firms do not understand that price is a powerful proxy for quality. Firms claim a certain market position in relation to quality of advice and service and then price below that, thereby undermining the message.
  • Poor or non-existent induction training on pricing – the blind leading the blind?

2.  Pricing analytics & reporting:

  • Practice management software has historically provided plenty of data, but data on its own is largely useless unless it also provides actionable insights
  • Fixed fee arrangements in particular suffer from high write-offs and poor realisation rates due to lack of historical analysis
  • Any firm serious about utilising conditional fee agreements must invest in proper analytics capability, and not simply something cobbled together in an Excel spreadsheet

3. Pricing execution:

  • A broad lack of price negotiation skills and a lack of awareness or understanding of the many pricing strategies and tactics available to lawyers results in pricing that is often a poor ‘fit’ for the client and/or the firm
  • A lack of pricing collateral, templates and pricing precedents
  • Confidence is absolutely critical to good pricing behavior. Do you set and negotiate prices confidently or through fear of losing the client and/or fear of losing the job?

Lawyers are highly skilled in devising bespoke solutions to their clients’ problems. But few presently meet the wide-ranging needs of their clients by devising pricing solutions tailored to the needs of ‘this client, this time.’

The ability to deploy a wide range of matter specific and client specific pricing and payment options, of which the hourly rate is but one, mitigates the often confrontational dialogue between lawyer and client. When lawyers are able to engage in sophisticated pricing discussions, the results are twofold: a closer-to-optimal fee for the firm, and happier clients, who see that they are being given choice, certainty, and control. In other words, a ‘win-win’ for the firm and its clients.

There is in fact abundant evidence that what clients really want are pricing choice, certainty and control. Yes, some want the lowest price available, but there are far fewer of these than you might imagine (about 10% according to research). Offering clients an hourly rate is offering Hobson’s choice, as would be a fixed fee.

Offering clients a choice between an hourly rate and a fixed fee is a start. But there are many, many more pricing options available, and, once understood and practised, these can be offered too, either singly or in combination. It’s no bad thing to offer a client three or four pricing options, then adding a payment option too, such as a discount for payment in advance. Some of the many pricing options now being offered by innovative law firms are:

  • Conditional fees                                                                    imagesUD5R2LBC
  • Cap & collar
  • Abort/success
  • Retainers
  • Service level guarantees
  • Bundling/unbundling
  • Versioning (eg gold, silver, bronze)
  • Premium for urgency
  • Combining one or more of the above

One of the consequences of the recession and the increasingly competitive nature of the legal sector has been that law firms’ approaches to pricing have tended to the defensive and reactive, aimed at preserving existing relationships and getting every last job across the line.  Not enough have grasped that sophisticated pricing strategies can be a central plank in the firm’s business development strategy.

In fact, smart pricing can be used both a sword and a shield. Once a firm has mastered smarter pricing, and put in place policies and the infrastructure to support those policies, it can begin to use its now extensive pricing repertoire as an icebreaker with prospective clients and intermediaries. Pricing is a skill that is just as essential to the business development toolkit as networking or selling, yet has a more immediate impact on the bottom line.

imagesBDP4IRRT

Nigel Haddon

Pricing Consultant with Burcher Jennings, Pricing and Costs Consultants, www.burcherjennings.com

[This blog is based in part upon ‘Chapter 10: Pricing and Fees’ of the Law Management Section Guide to Business Development, published by the Law Society, February 2015, and co-authored by Nigel and Richard Burcher. Nigel is one of the joint General Editors of that work, which is available from The Law Society bookshop: http://bookshop.lawsociety.org.uk/ecom_lawsoc/public/saleproduct.jsf?catalogueCode=9781907698774.]

Raise our prices? Are you crazy?

imagesEFBHZ8I9Many readers will have seen the recently published research by Morar Consulting for Veyo. To remind you, a few of the headlines were:

  • 42% of consumers were unsure that they would use their conveyancer again;
  • 60% found dealing with their solicitors the most stressful aspect of the process;
  • 27% chose their conveyancer because of the price being the lowest, making it the fourth most important factor in choosing a solicitor;
  • 25% said they would pay more for a faster service.

 

Why would a firm seek to raise prices in this dog-eat-dog world? When one in four choose their lawyer on price and price alone, where’s the mileage in exploring raising prices?

The answer lies in the questions. If every law firm competed to be the cheapest, who would win? Not your firm dear reader. That is a race to the bottom that nobody can win. So how, against this competitive, consumer-empowered backdrop, can law firms push back?

In business literature, commoditisation is defined as the process by which goods and services that were distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. Critically, it is the movement of a market from differentiated to undifferentiated price competition. It is the received wisdom of the residential conveyancing market that that is the position we now find ourselves in. But is that so?

Differentiation is not confined to large firms or high value matters. Pricing and service level options can be used very effectively, in isolation or combination to create significant visible differentiation around wills and powers of attorney, divorce, pre-nuptial agreements and residential conveyancing.

One of dozens of examples includes the option of a ‘premium-priced’ residential conveyancing package that includes up to two home/hospital/rest home visits by a legal executive/paralegal – one to take instructions and one to get documents signed. This is a proven and very popular option with the elderly, the immobile, the unwell and those without easy transport options. It is this kind of differentiated offering that helps you stand out from the crowd.

Almost anything is capable of differentiation. If this were not true, how is it that Fortnum & Mason can charge £5.95 for a pot of orange marmalade compared to £0.27 for substantially the same thing at Aldi? Answer – maybe there’s a clue in the names – ‘Aldi Everyday Essentials Marmalade’ doesn’t have quite the aura of ‘Highgrove Duke of Rothesay Marmalade’.  Who would know if there is much actually to differentiate the two products (although one would suspect there is)? More obviously, would anyone seriously suggest that the shopping experience is the same at both? And yet Fortnum & Mason is as busy and as profitable as it has ever been.

The firms that differentiate themselves most effectively are those that have identified aspects of their culture that make them superior service providers in their area and then communicate those advantages to the market in a consistent, compelling and memorable way.

There is clear evidence that home buyers are willing to pay more for a fast track service, so the opportunity is there for firms which are able to demonstrate both speed and efficiency.

Firms must resist the temptation to buy into the inane and demonstrably wrong assertion that legal services are all becoming commoditised and therefore you have no option but to slash your prices to preserve market share. There will always be people willing to pay for the ‘Highgrove Duke of Rothesay’ product provided you give them good reason to do so. If you don’t give them reason to do so, you will never command anything other than ‘Everyday Essentials’ prices.

 

Nigel Haddon

Pricing Consultant at Burcher Jennings, Pricing and Costs Consultant