How law firms price their services and how their clients view that pricing process goes a long way to defining that law firm's identity in the marketplace
I often ask our outside law firm partners, “What does your pricing team do?” It is typically a great test to see what the partners within a law firm believe the role of a pricing team should be. More often than not, my heart sinks when they reply, “Our pricing team pushes our rates higher and makes us more profitable.”
This should stop us in our tracks. When it comes to law firm pricing and the roles of these teams within law firms, the need for clarity into what pricing is, why it is important, and how these teams add strategic value should be clearly defined.
Your price represents who you are
Understanding if a price is fair starts with knowing what is being bought and sold. Let us start with the fundamentals. If a fair price is the amount that a consumer is willing to pay for a good or service, then that good or service is equally as important as the number itself. For example, if you were to spend $1,000 on a bottle of wine, then knowing whether it is a 1982 Latour or a bottle J. Lohr from your local grocer is the most significant factor you need to know as you buy.
For law firms, the price for an hour of work is incredibly varied, based on years of experience, practice area, geography, and even firm structure. Even with all of this variability in price, clients fundamentally want to understand business value. If a client is paying $950 per hour for a partner’s time, knowing the experience that the partner brings, the work for which the firm competes, the other firms against which the firm competes, and how the firm wins work is essential as the client determines whether the price is fair. A client wants to know what they are getting, and $950 represents all of the intangibles that extend well beyond a CV on a website.
There should never be a time where a law firm is unable to represent clearly the value that its prices represent. “It is what it is…” is not a justification for a price, and responding that “someone else is more expensive” can shift the client’s focus away from value is delivered value and toward the price offered. Anyone negotiating new work for a law firm should understand what their law firm represents, and that’s the first step in creating confident prices — anything else is a means to sow distrust between law firms and their clients.
Price is an important part of firm strategy
A price is representative of what a firm is today and how it can deliver value to clients, but as time goes by, the needs of the marketplace will change and clients will continue to ask if a price is still fair. What happens when a law firm begins to evolve?
All law firms evolve over time, but as that evolution takes place, clients will look to make sure the price they’re paying is still fair. Just because a law firm can do more doesn’t necessarily mean a price increase is warranted. Clients have to understand the “Why” behind the increase.
In every aspect of a law firm’s strategic plan, price will play a role because it is intrinsically linked to what the law firm does. This means that as firms look at new service delivery models, new technologies, new practices, or new jurisdictions they also need to think about how the fair price for those services fits into their current economic model or the model of the future.
Pricing teams enable your business
Entire successful legal careers were once built by making more money based on a relatively simple formula: join a successful firm and then not die. Now, it’s not so simple. Clients, now more than ever, want to create deep partnerships with their outside counsel. And as with any partnership, transparency is key. When clients sign a check to a law firm for its services, they want to understand what they received from the law firm in return. This is where pricing teams can sing.
Do not be mistaken, a pricing team does not simply push prices up in the hope that profits will rise as well. This sort of short-term focus on the part of a pricing team is a firm’s first step towards sowing distrust with your clients. A law firm’s pricing team represents the business and should be clear about why a price should change before it ever does. “Rates go up, because rates go up” is not a viable reason for prices to soar and is a clear sign that the firm may have missed the mark.
A pricing team can be a key component to ensuring that a law firm’s price truly represents what the firm is today; and, over time, that team can also ensure that the price evolves as the firm does. These teams are not just number crunchers; they should be business enablers who are intimately involved in all aspects of strategic planning, marketing, and operations. They should know what the price is and be able to explain, regardless of circumstance, why it is fair. This sort of thoughtful view of a law firm’s identity, competitive landscape, and operating economics is an invaluable asset that will propel good firms toward becoming trusted advisors to the world’s greatest companies.
Price will always be an important consideration for the clients of law firms because it is the one consistent variable in every matter and relationship; however, it is not the only consideration when clients buy legal services. Clients get good value when the price for legal services is commensurate with the level of service & value delivered. Communicating this is more important than ever. When these things are out of balance, client satisfaction will be as well.
This is also where pricing teams can deliver the greatest value for their law firms. My hope is that when law firms talk about their pricing teams, they see them the way clients do — as one of their most valuable assets.