Have law firms already gone beyond the hourly-based economics? This question has been interesting for us since we’ve started our journey. At LegalTrek we have a strong view about value pricing and the benefits it’s bringing to both lawyers and their clients.
For many lawyers value based pricing still means stepping out of their comfort zone because they have to agree on the price with their clients before they actually do the work. In addition, more and more clients are not willing to pay for clerical tasks (which is why attorneys need to leave this to technology).
For the reasons outlined above it is understandable why many lawyers are skeptical and not willing to give value-based pricing a chance. Still, we believe this pricing model will help you increase efficiency due to your clients’ feedback. It will make your billing processes easier and simplified, and will eliminate the incentive to work on redundant tasks.
The importance of this topic compelled us to share with you what legal experts with decades of experience in pricing think:
For Patrick Lamb it is important to base billings NOT on time but on clients’ value.
We created Valorem based on the premise that clients are the judge of the value they receive, and that the amount of time spent doing something does not determine its value. Hence, every invoice we have ever sent has a Value Adjustment Line where a client can change the amount due to reflect his or her belief as to the value of the work we performed. Billing based on time is based on a self-centered value judgment scheme, not one focused on clients.
John Chisholm thinks that lawyers should understand that they don’t sell time to clients.
As a practicing lawyer, partner, managing partner and CEO I used to think I/we sold time. Only problem with that is I discovered, after I became a recovering lawyer, that clients don’t buy time from lawyers – never have. I therefore deducted that I ought to stop selling something clients don’t buy. I was introduced to value based pricing in 200-6 too late for me as a practicing lawyer but not too late for me to try and influence my colleagues and my profession in understanding that there is a much better way to practice our craft which has enormous benefits to both lawyers and clients.
Clients are no longer interested in paying for our time and effort; they only want to pay for results, outputs and outcomes. How much they are prepared to pay will be largely determined by their perception of the value that they feel that they have received.In future, the challenge for lawyers will be threefold. First, we need to understand exactly what value we are and are not delivering. Second, we need to become far more adept at articulating and communicating that value to clients. And finally, we need to use pricing far more intelligently, with sophistication, innovation and flair to monetise and capture the value that we are delivering.
Hourly-based pricing is distracting lawyers from being innovative and from adopting new best practices, says LegalTrek’s CEO Ivan Rasic.
I believe Abe Lincoln was terribly wrong with his renown “Lawyers’ time and advice are their stock in trade”. Even when I practiced, I never felt time is something a lawyer should be selling, and the reasons are twofold (they go in favor of both parties):
- Selling time really puts wrong incentives in place, in favor of slack and ineffectiveness. Ultimately, it will lead to clients feeling cheated (even if they are not) thus making lawyers justify their time-sheets and wasting time and energy without any good reason;
- Selling time really is not that scalable (given you only have 24hrs in a day). I see no reason why lawyers would not strive to scale their business, revenue and a client-base way past the constraints of a given day or a week. With right practices and packed products in place, you can achieve immense scalability with a more-less fixed cost of business. And you can also achieve great price, given the value you provide.
That being said, I feel hourly-based billing is intellectually lazy, and gives lawyers a false sense of “being in a comfort zone”, which distracts them from innovating or from adopting best practices which would certainly level-up their law practice.
According to Raj Jha many young lawyers make a mistake with the pricing strategy when starting their law firms, namely focusing on what their competition is charging.
I started my practice doing what most attorneys do, which is looking at what other lawyers are charging hourly, and charged a little less. Which is a really, really poor way to price. After all, who should be in charge of your prices? You or your competition?
When you stop thinking of your practice as a commodity and equating price and value in your fee model, the whole thing snowballs.
We always appreciate hearing different opinions and experience. Please share your comments below!