In the old days we weighed the files to gauge the price.
Then accountants were hired by law firms – timesheets were introduced and the majority of lawyers charged on the basis of time spent. This easily leads to over-charging because firms get paid for any inefficiencies, or under-charging where the client would have been happy to pay more.
Timesheets are good for management information (ie how much time was spent), but not good for pricing decisions.
To help you judge an appropriate fee level, here are some clues as to whether work should be given premium pricing or discounted.
Premium pricing clues
- Urgency of work to the client – if you need to work people through the night or weekends or bring them back from training courses, most clients would accept that it might cost more
- Importance of work to the client (what Americans call ‘you-bet-your-ranch’ work) – if the benefits or risks inherent in the matter are greater than normal, most clients would accept that it might cost more. Sometimes the work is urgent and important!
- Expected savings to the client (tax work in particular can provide such savings) – makes it easier for clients to pay more
- The dominance of the firm in the category of work – where your firm has the established brand name, or a distinctive way of delivering the service
- Successful previous experience with the firm – the client will find it less stressful to work with you and their boss won’t be surprised at the selection
- Low level of competition for the work – for whatever reason
- Low level of experience working with lawyers – the more experienced buyers can drive a harder bargain
Discounted pricing clues
- High level of competition (eg beauty parade) – though clients don’t always choose the cheapest.
- Fixed client budget – though there are ways of dealing with this, such as staged payments
- General market expectation from experience of similar work – so it will help to make clear where your contribution is not equivalent to similar work in the market
- Lack of realisation in the client’s mind as to the value of the work – this occurs where the lawyer has failed to explain the benefits and risks inherent in the matter
- High level of experience working with lawyers – or really good buyers, such as Procurement functions
- On-going relationship (eg Key Account) – there may be a volume discount or you are fearful of letting a rival firm start to work for them
I urge firms not to be slaves to timesheets and think about flexing their pricing depending on circumstances.
It is probably better to offer clients some aspects of the work for free, rather than offer the whole lot at a discount. It can be hard to change your pricing at a later stage, so it can help if the client gets of sense of your true worth from the outset.