Value Pricing Q & A: Commoditization, Small Transactions & Bob's BBQ

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I am concerned that we will ultimately pay the equivalent of $1 per litre of milk for legal services... If your client perceives that the value of the service you provide is only worth $1 a litre or $1 per hour then it probably is. If a client does not understand the value that you are providing to them that may well be your fault and not your clients. We have to better understand where we provide value and where we don’t provide value to our clients and the only way of doing that is by having a conversation with our clients. If you have clients that will never appreciate the value you provide to them, then sack that client and find someone who does.

If you think of your services as being commoditized, they will be and you will allow the market to dictate and lower the price accordingly. If bottled water distributors do not think of water as a commodity and can differentiate one water from another, then surely us lawyers are capable of differentiating any service and product we provide from someone else’s?

Value Based pricing should not be confused with fixed pricing where you advertise the same price for a similar service no matter who the client is and no matter what the buyer perceives is the value he/she is receiving. We have to learn to value and price our client- not the area of law we practice in or our our seniority in the firm.

In a practice where the average fee transaction may be less than $5000, how do you manage the fee engagement and project management across that sort of fee spend?

I assume this question refers to smaller matters which may be perceived as more price sensitive.

That is an interesting question because often I get told the opposite-it is easy to agree on price up front on a simple matter because it is easy to predict what is going to happen and how long it is going to take! In fact your true value to your clients and what clients will pay you a premium for and where lawyers often leave money on the table is in the more complex matters where they require your intellectual capital, social capital, structural capital, your knowledge, judgement and advice - not your hours.

Value based pricing is scalable. You scope the work and then price the work up front before you do the work. Remember unless you pay your fee earners by time, your cost base never changes. Nearly all the costs in your firms are fixed. It is one of the two main fallacies of time based billing that we make a profit on every 6 minutes of time billed because time is our cost of production. (The other is that time based billing is transparent – it is not).

Value Pricing is actually easier on smaller engagements, since the price is usually fixed by market value and client willingness to pay is much more sensitive. Good project management is crucial and turnaround time is one of the best KPI's to make sure work is moving through the firm as the only time your clients should really be interested in is elapsed time. The objective is to manage and measure outputs, not inputs. Focus on duration—how long does work stay in the firm?—rather than time spent.

Also apologies, some technical gremlins were at work in our previous newsletter which meant the link to the film clip was non existent. Here it is (in good working order this time). Bob's BBQ