Lawyers are used to working in an environment where laws and logic play a dominant role. That is probably one of the reasons why fixed fee pricing for law firms has become the de facto standard in the industry. In other words, a client would make an appointment with a lawyer, explain what he or she wants to be done, and the lawyer would quote a fee based on the amount of time it will take and the rate per hour for that type of work.
There is a slight problem with this approach though. Pricing is not merely a matter of logic. If you do not understand the psychology behind what a particular client is willing to pay, you could easily lose his or her business. What one client might see as a perfectly reasonable price, another one could regard as exorbitant. That means pricing is as much a subjective issue as an objective one.
Fixed Fee Pricing Versus Value Pricing – The Basics
Let us quickly recap the basics of value pricing and fixed fee pricing for law firms to make sure we’re all on the same page:
Fixed Fee Pricing For Law Firms
With this pricing model, the lawyer has an hourly rate for each partner and for different types of work. If a client, for example, wants one of your lawyers to handle their divorce, you would simply look up the standard hourly rate for this type of work in your pricing manual and quote them a fee based on the estimated number of hours it will take.
There might be a proviso that the price will be higher if it takes longer than expected, but in essence, this is how fixed fee pricing for law firms works.
Value Pricing For Law Firms
With value pricing, the lawyer adopts a more subjective approach. Before giving a prospective client a quote, he or she would spend a little bit longer with them to first get answers to the following questions:
1. How Much Will A Successful Outcome Be Worth To The Client?
If one client will save a million dollars if your law firm successfully completes the assignment in question and another one would only benefit $10,000, the theory behind value pricing says you can, and should, charge the first client a lot more.
2. What Alternatives Does The Client Have?
If a client wants your firm to handle a particularly complex case dealing with trademarks, first look at what his alternatives are before giving him or her a quote. If you are the only lawyer in a thousand kilometres who specialises in this type of service, the client will most likely be prepared to pay much more than your usual hourly rate.
3. How Urgent Is The Work?
Someone who is extremely eager to stay out of jail will be prepared to pay more than someone who isn’t in any particular hurry.
Summary: Value Pricing Versus Fixed Fee Pricing For Law Firms
Switching from fixed fee pricing for law firms to value pricing requires a major shift in thinking. The fixed fee model is based on your law firm, the work it does, and the number of hours it takes to do that work.
Value pricing, on the other hand, turns the whole equation on its head. It starts with the client and the benefits he or she stands to gain from the work your firm is about to do for them. It is based on the assumption that people don’t buy a product or service, they pay to have a problem solved. And if you can solve that problem better, faster, and more efficiently than the next law firm, that client will be prepared to pay much more.
The proponents of fixed fee pricing for law firms, however, argue that value pricing is inherently unethical. Charging different clients different prices for the same work could also severely damage your brand image if these clients should ever find out.