Every professional and firm that I know of which has made or is making the transition away from billing by time to pricing by value has done it differently to suit their particular practice, their people and their clients. What works for one firm may not necessarily work for another. While I provide below my top 10 tips and traps based on my experiences from what I have seen works and doesn’t work, at the end of the day you will need to experiment, test, and adopt a trial and error approach to ultimately work out what best suits your particular practice and your clients.
- Read, read and read some more…. and then talk to someone
You are not the first nor will you be the last professional to make the transition to value based pricing so make the most of those that have gone before you. There is a wealth of material from books, blogs, articles, websites, and podcasts out there.
After some reading, speak to some people who have done it. I have found that most professionals who have made the move are more than happy to share their experiences.
- Communicate, communicate, communicate
If your firm consists of more than you, all stakeholders should know what you are doing and why you are doing it. After all, you will need all the help you can get. Everyone from your receptionist, your administration and support team, and of course lawyers, all have a role to play in an effective transition
Meet with your team, discuss the pros and cons of the move, what affect it might have on all areas of your practice, on which clients, where is the low hanging fruit both internally and externally, where your pockets of most resistance are likely to come from, and so on.
Persuading your clients about “what’s in it for them” to move away from billing in arrears to pricing up front, will be so much easier once you and your team know why you are making the transition. Collaboration both internally and externally is key to both initial implementation and ongoing success.
- To price properly for value, you should stop recording time
I do understand how difficult it is for many professionals to stop recording time, and many firms have successfully introduced value based pricing while at the same time maintaining timesheets. All I can tell you, overwhelmingly, is those firms that ultimately made the transition to value pricing say if they had their time again, they would have stopped recording time sooner. No matter how hard one tries, timesheets keep you mired in time. Sooner or later you have to break the link between time and value, and I would implore you to do it sooner.
- Understand value based pricing is a business model change - not a billing model change
If moving away from billing by time was just a billing model change, it might be relatively easy. It is not. It is not just about moving away from time-based billing. Discovering your firm’s purpose; fostering a culture of innovation; better and more-focused client selection; better project management; using leading indicators predictive of performance (instead of lagging retrospective metrics like KPIs); and eradication of annual performance appraisals, all go hand in hand with a timesheet-less environment. All of this will be more attractive to both your lawyers of the future and the type of clients you want to attract to your firm.
- Have a value conversation with every client and price your client not the work
You can’t talk about scope - let alone price - until you understand what your client needs. To do this, you need to have a conversation with your client about what they value. Value is subjective. Each client will have their own different perception of value. Unless your client understands the value that you are proposing to create, there is a good chance the price you quote will be too high. If you don’t understand the value that you create, there is a risk that the price you quote will be too low. If it is too high, you risk the quote not being accepted. If it is too low, you risk leaving value on the table.
In theory, you may have different prices for the same work to be undertaken for two different clients. The reality is that no two matters are exactly the same. Remember, just as all value is subjective, so all prices are contextual.
- Don’t price your own work
There is a reason authors and actors have agents. It is difficult to be objective about the value you are creating for your client in the work that you will do. I will be bold as a lion pricing your work. Why? Because I do not have to face your client. That is why I have often found partners are the worst pricers. Larger practices have something akin to a pricing or a value council. Smaller practices might involve their personal assistants in pricing considerations. Many firms simply have a policy that no one prices their own work and always use a buddy for pricing. The buddy shouldn’t always be the same person. Spread it around to get some perspective.
- Get better at saying “no”.
You cannot value price the wrong client. To price for value, you need to retain your self-esteem, and have a bit of an ego. You also have to be prepared to walk away.
Baker’s Law “Bad clients drive out good clients” suggests the price isn’t wrong. The client is.
Being prepared to say “no” to a client is so powerful in transforming your practice. There is great nobility in being paid what you are worth.
- Make the complex simple and the simple compelling.
Sometimes lawyers do the very opposite - we are often perceived by our clients as making a mountain out of a mole hill or trying to find problems that aren’t there. Add this to the time based billing model and we can appreciate why clients sometimes get the feeling we place our own interests ahead of our clients.
My advice, especially in the beginning of your move away from time based pricing, is not to make it too complex. For instance, if you are really struggling to price the whole transaction, price it in stages. While we may agonise over price, in the main clients tend not to.
You won’t always get the price right - no one does and there is no “perfect price”. As long as you learn from both your pricing failures and your pricing successes, you and your team will become more confident and more competent in pricing.
If your client does not understand the value you are providing, it is not your client’s mistake, it is yours.
- Understand and practice the “5 C’s of Value”
For any lawyer to price on purpose you must understand the Five Cs of Value which are:
1. Comprehend the value we are providing to our clients.
2. Create value for clients.
3. Communicate the value we create.
4. Convince clients they must pay for value.
5. Capture value with strategic pricing based on value, not on our costs and efforts.
- Provide a service guarantee
The best vendors with the best products or services always guarantee them but this is something that strikes fear into the hearts of most lawyers. But you already do it without expressing it. You are guaranteeing the service the client is signing up for, not the outcome. A service that is guaranteed is worth more than a service that is not. It empowers clients. Few clients will ever call on a service guarantee. If they do, you will feel good about having the discussion.
How can there be a costs dispute if you have given a service guarantee?
About the Author
For over a decade, John Chisholm has helped lawyers to move to a timeless practice, has written numerous articles, papers and blogs on value based pricing and has presented and spoken to thousands of professionals on the topic. In 2017 John co-founded The Innovim Group with Liz Harris and David Wells to assist professionals with their practice and pricing transformation. John is a Distinguished Fellow with the Centre for Legal Innovation; a Senior Fellow of the VeraSage Institute, an international think tank of thought leaders and innovators for professional firms; an Adjunct Professor of Law at La Trobe Law School; and a Fellow of the College of Legal Practice Management.
John will co-present a workshop in Sydney (29 May) on Innovation in legal pricing: The why, what and how with Liz Harris and David Wells. The workshop will address what successful pricing transformation involves; what clients perceive as value; how to adopt a creative approach to pricing options; share expertise in successfully conducting pricing negotiations; and, much more!