Client Focused Pricing (CFP) For Lawyers
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Hourly billing (time spent multiplied by the hourly rate) is purely mathematical and price is determined solely by the inputs (the time expended by lawyers and legal professionals). CFP recognizes that when a lawyer is retained it is an agreement between two parties (the law firm and the client) and determining the price for the services should be more heavily weighted toward the benefits derived by the client.
I say weighted because it is a balance when pricing. You start with an understanding of the “market price” for the particular type of services. This is often a range as legal services are not a commodity where the product is exactly the same each time. Next you consider the cost (generally the time to be expended), but then you bring in a thorough consideration of what your client gets.
Below are some ideas on how you can better understand the benefits derived by your client.
Attitude
Start with parking the thought that it is unfair if you do not get paid for every minute you work on a file. You know where you are heading on a file and focus on executing on the plan to create the best result possible for the client. After you have finished the file, absorb your learnings (including how much time you spent), improve your systems and approach, and go to the next file. Repeat and repeat. When you stop dwelling on how much time you spent on each file, you will have taken a major step in allowing yourself to focus more on the benefits derived by the client when pricing rather than just the time you will spend.
Listening
Lawyers are advisors so your default is likely to be helpful and start to “tell”. You feel you know what would be a successful outcome for the client. It is important that you convince yourself that you do not know what is best for your client. Be interested and curious and ask lots of questions to get the client telling you what success looks like from their point of view. This is good on two levels as firstly you will learn about the pain points and the benefits so that you can price with this in mind but at perhaps an even more important level, you will shift your clients vantage point and get your client seeing the benefits of your services. After all there is really no correct price; there is only how each of the sides feel about the price. As they say, beauty is in the eye of the beholder.
Options
If you give one price based on one scope of work, you are at the worst giving your client a choice to say yes or no and if you are lucky, you are embarking on a negotiation which isn’t the best way to get started with a client (on opposite sides). Use options (all of which should be acceptable to you) to start a discussion and collaboration on pricing in which you work arm in arm with your client to find the best pricing approach for your client. You can vary scope of work and pricing approaches to come up with the options. As an example, one option could be to unbundle the services to offer a price for just the first step of strategy development. Use the principle of anchor pricing by using fairly close prices but with noticeable variance in the deliverables. Your imagination is really the only limitation on pricing options.
The Why
You must know what truly distinguishes you and your firm. If a client is asking (or perhaps silently wondering) why they should pick you, be well rehearsed on how you will answer this question. Better yet, use Jonathan Stark’s tip by starting the conversation with “why do you want to do this project, why now and why us”.
Scope
Get this in writing always, even if the project is as simple as an incorporation. It solves so many things that can arise after you start. First it ensures you are playing from the same song sheet. It allows you to set out the value of what you are delivering. As a simple example, for an incorporation, you can set out the details of your robust share structure and the details of your organization documents. It also allows you to deal with what happens if the project does not complete as expected.
In the comments section for this post, share your ideas for CFP.
Until next time,
