The Debate Over Value Pricing Rages On

Over the past two weeks, there has been some significant traffic on the legal list-serves I belong to over the issue of value pricing. Lawyers want to know how it's possible, whether they can really ditch their timesheets, whether clients really understand it or whether they  prefer hourly billing, whether you can really use anything other than hourly billing in the context of litigation.

Accountants struggle with some similar issues. Ron Baker, one of the foremost proponents of value pricing, is an accountant. An article from the UK site AccountingWeb entitled Value pricing: a debate without end discusses many of the common objections to value pricing. As the article notes, "[o]ne issue could be that you end up charging clients wildly different sums for the same work." Professionals are afraid that clients will talk, and the client that was charged the higher fee will be angry. The article also claims that it is also worth pointing out that the billable hour prevents these problems occurring in the first place." Really?

Let's take the second statement first. In an hourly context, do two clients with the same legal issue, even in similar circumstances, end up with the same total legal bill? It's highly unlikely that the total cost of the engagement for each of those two clients is going to be exactly the same. The hourly rate might be the same, but the total legal bill isn't going to be the same. And sometimes the hourly rate isn't even the same, is it? You may have different rates for different clients.

So if two clients with 'the same' work don't pay the same for their legal services in an hourly context, why don't they complain about it? There are three possible reasons:

First, there's an illusion that they're paying 'the same' amount because they're paying the same hourly rate (although we know this may not always be true either).

Second, no two clients, even two clients in similar circumstaces, are going to have exactly the 'same' work. No two clients or engagements are ever exactly the same. The difference with value pricing is that you price the engagement based upon the value of the engagement and the benefit that your services bring to your clients, instead of on the time it takes you to complete a specific task.

And third, it's unlikely that clients talk that specifically about their total legal fees. The information is too sensitive, and clients don't share that kind of 'inside information' easily. Do your hourly clients get together now and compare the total cost of their legal services? Can they really make that comparison?

Whether your clients complain about your fees or not, you've got to be able to show that your fees are reasonable based upon the client's stated goals and objectives and the benefits that they receive from your services. You have to be able to tie your work and your fees to their desired outcome and show how your services are necessary to advance their goal or to prevent other problems. When the client understands that, and when they agree to the specific work being performed and the specific fee up front, they'll be much less likely to complain.

Of course, if you truly think the work is 'the same' for two different clients, you're free to charge them the same fee. If you've been practicing long enough and pricing long enough, you'll probably get a good idea of how clients with certain problems, in a particular business or industry or in similar circumstances value your services, and you can price based on that value and the benefits that your service provides, without charging different fees to different clients for those services.

As Baker himself notes in a comment to the article:

Yes, Value Pricing is difficult. It requires creativity, innovation, creating more value for your customers, thinking, experimentation, and hard work.

This is probably why most firms can't do it, or don't want to do it. Much easier to bill in arrears by the hour.

The AccountingWeb article also raised the issue of timesheets, which I'll discuss in a future post.

Need help re-thinking your own law firm fee structure? Contact me to schedule an appointment for a consultation.

Comments

[James Mason]

Allison:

This drives me nuts as well. . .and I JUST don't get it. I use the example (which I lifted from my friend JoeRecruiter-THE Legal Recruiter), of Surgeons and Dentists. Those folks don't do hourly billing, and nobody seems to have a problem with it, even Accountants.

Heck, even Board Members, (who were mostly accountants back in the day) who, it seems to me, are mostly responsible for the nickel and dime-ing and nitpicking and fussy fustiness that led to the death of that noble "Olde" practice of Mr. Firm Founder, Senior going to lunch with Mr. Corporate President, Senior, and, perhaps over a nice Port, only slightly older than either of those two August gentlemen, the gentle placing of an envelope of the finest laid linen on the table linen, in which a piece of the also finest linen stationery, engraved and everything, would contain one line of text: "For Legal Services Rendered", and a figure.

Now, granted, the figure might be heart-stoppingly heart-stopping, but, back in the day, when the Messrs. Senior were running things, and winding very nice lunches up over little bitty glasses of Vintage Port, Legal Matters were not to be sniffed at, and the engaging of a Law Firm was a serious matter indeed.

Perhaps Lawyers and those who love them, (even if we only love you in the way my nephew Bubba loves him a good rare steak), caused their own problems, and more's the pity, but at the end of the day (I REFUSE to stop saying that, trite tho it may be), it hurts me in the heart when I think about the smartest of the smart measuring out their lives in six-minute increments, like pouring spoonfuls of sand into a sandbox.

If for no other reason, I say that Lawyers, Law Firms, and Lawishly-related (my contribution to new words) professionals have GOT to say "No More.! I mean it, too!"

My dentist, my doctor, hell, even my Gardener, for Pete's sake, and probably Pete himself, ALL charge by the job. If I bust a tooth, or my Zinnias need kerflunking, or, Saints Preserve Me, if my jowls begin to sag, I know that one of these pros is ON THE CASE. And I can get an "Estimate," too. But none of them, not ONE, will be charging me an hourly rate.

I find that oddly comforting.

Warm Regards,

James E. Mason
Managing Partner
Mason|McRight Legal Recruiting