What About Pricing for Legal Services? Insight from a Legal Marketing Expert

TASA ID: 2598

One of the hottest debates in the legal sector has been whether the billable- hour is dead, and what will replace it.  Will it be flat-fee pricing, value billing, or something yet unimagined?  It comes down to the fact that clients and lawyers want a fair deal. While the billable-hour has been the simplest form of pricing and offers many benefits to lawyers and their firms, the landscape has changed.  Clients and potential clients know more and expect more.  This is particularly true in the case of complex litigations and clients that demand accountability.  In a nutshell, they want value.

Unfortunately, most law firms are not aware of what the client values.  Is it highly specialized expertise?  Is it turn-around-time? Is it accessibility?  Is it a low price?  Is it a track record?  Is it all of the above, or none of the above?  Firms that are willing to understand what the client values will have a solid infrastructure for establishing a fair price.  Creating price based on poor information, or on popular pricing tactics, spells trouble for the modern law firm.

What I am suggesting will seem totally alien to most traditional lawyers.  I am suggesting that lawyers attempt to understand what their clients value. To date, legal pricing has been from the lawyer's point of view, not that of the client.  It has been based on a "what-the-traffic-will-bear" philosophy.  Large, successful firms, charge more [a great deal more]; small firms charge less.  If there is a third-party payer, the sky's the limit.

There are three marketing truths about pricing:

  1. To the buyer, price is the most unpleasant part of buying.
  2. Pricing is the easiest marketing tactic to copy.
  3. Value represents everything about the product.  Lawyers must move to value-based pricing.
Think of it this way: value= perceived benefits-perceived costs. The more the perceived benefits exceed perceived costs, the higher the likelihood the client will select your firm.

Understanding the value equation for an individual client, or even a segment of clients, cannot be based primarily on experience or guesswork.  You have to do the work!  This means, either you, or a marketing research professional, must determine what the client views as value. This can be time-consuming and expensive, but it is necessary.  It also will provide you with a real pricing strategy instead of a pricing policy.

Rather than leaving you with this apparent unreachable challenge, let me leave you with some hints:

  • Value is price.  More specifically, the lower the price, the more value the client thinks s/he is receiving from the purchase.  To establish price in this manner, the marketer must understand to what extent the client understands the absolute price, how s/he perceives price, and how much is too much of a perceived sacrifice.  There are several pricing techniques to use when low price is the deciding factor:  discounting the product, odd pricing, and penetration pricing.
  • Value is product attributes.  In this case, the value of the product is receiving the special attributes of the product, at any price.  Often, this approach is irrational and based on status and reputation associated with the product. Check out prestige pricing as an alternative.
  • Value is quality.  For some clients, the price=quality paradigm is employed. The challenge is to determine how the client defines quality.  This varies by client segment, product category, region of the country, and so forth.  Product bundling and different prices for different levels of quality are two options.
  • Value is fairness.  In this case, the client makes a calculation deducting the perceived costs from the perceived benefits.  To facilitate this process, the legal marketer can frame the value equation to help make this calculation. Maybe, the client is using the incorrect variables, or can't understand the calculation.  Results-based pricing is another option here.

Let me conclude with some suggestions that will help find the optimum value for existing and potential clients.

  1. Make sure there is at least one person in your firm who understands the fundamentals of pricing, especially, value-base pricing.
  2. Collect relevant information that includes costs, consumer benefits, and pricing history.
  3. The firm should be proactive about price and communicate with clients and staff about pricing alternatives.
  4. Price [value] must be customized to the client and the problem.
  5. Stick with your pricing strategy for at least one year.
This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.  

This article may not be duplicated, altered, distributed, saved, incorporated into another document or website, or otherwise modified without the permission of TASA.

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