Pricing; eight mistakes law firms can make

27 Jul 2015

Pricing is frequently in the news as Law firms change cope with the more commercial environment post-recession. Here are eight key mistakes law firms can make.

Clients want the lowest price possible

Sometimes, but often not. Research shows clients are really interested in value for money and won’t always go with the cheapest. However, with plenty of competition around they can certainly force prices down – which means they can get the quality they want for less.

We can’t take that work because “it is not profitable”

How do you know this? Make sure you really understand your business model so you know when to take and when to turn down work. Without a proper look at the dynamics of your business, it is impossible to know what is profitable and what is not. You could be turning down profitable work, or taking on unprofitable work.

We have to go with the “race to the bottom”

No. Competitors may be forcing prices lower and lower – but possibly to the point where the work is unprofitable for them. Find ways to differentiate what you do so clients understand the value and are prepared to pay for that. Maximise your profit from each matter and if the work really is unprofitable, remember you are better off without it.

We can’t charge more than what is on the clock

While you must comply with the regulations, there is no rule to say that fees are capped at the hours on the clock. So, a fixed fee can be just that – fixed, not capped, and it is ok to charge a premium for value.

Value Pricing is the way forward

Only in the text books. Remember clients want value for money, so they want the maximum value for them at least cost. There is no law to say that they will pay more just because you are doing “value pricing”.

Price must be related to cost

Again, you must comply with the regulations, which include a requirement to state your hourly rates, but there is no regulation which says that the price agreed must be tied to the hours worked. On the contrary, clients are looking to pay a fair price for the outcome achieved for them.

Hourly rates are the bedrock of my pricing

If so, you might be losing business! Standard hourly rates are created by accountants to understand the business better. Pricing should depend more on what the client requires and what the competition are doing.

My client will protect me from the procurement team

Possibly, but remember your client contact and procurement have a common interest in getting sustainable relationships with suppliers who provide consistent quality at a good price. They will work together to achieve this so my advice would be to work with procurement.