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.
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:
- 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?
- 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
- 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
- Cap & collar
- Service level guarantees
- 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.
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: