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Value Pricing

14.05.2010

Without doubt one of the biggest concerns that comes up in conversation with clients and contacts in the legal world is the fear of having to quote competitive fixed fees, the impact that will have on business and how to respond. With economic pressures likely to be compounded by the implications of the Legal Services Act, this is an issue that will be with us for some time and could dominate the management agenda throughout 2010 and beyond. Our experience is that, with the right training and the ability to understand the context of the assignment, solutions can readily be reached.

The Old Approach

The culture of the legal industry epitomises the hourly-billing approach which places the burden of risk squarely on the shoulders of the client, with a focus on efforts rather than results and little incentive for an efficient approach to case management. Aside from the effect on work-life balance, charging by the hour inevitably leads to price competition and a ceiling on earnings.

In the legal sector of old, this limit on potential earnings was barely perceptible, as charge-out rates increased year-on-year and firms returned ever healthier looking profit figures. However, this world is gone and the flaw in the system has been fully exposed. Hourly billing leaves only two possibilities for increasing revenues charge more per hour; or work more hours. When these options are unpalatable to either clients or fee earners, a fundamental shift is necessary.

A New Paradigm?

The shift to pricing by value is not a difficult one to make, but it does not happen overnight. Partners and business developers need to become practiced in when and how to hold the conversation, fully comprehending the process to enable them to clarify the value up front, and creating payment schedules that reflect the value delivered at each stage of delivery.
The benefits, however, will be worthwhile. Demonstrating value, and being remunerated accordingly, helps to develop trust and build a credible reputation, and brings with it invaluable opportunities for cross-selling and soliciting referrals.

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