Getting the Price Right

 In Practice Management

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GETTING THE PRICE RIGHT

Market forces

When solicitors are challenged about why they are not charging more for the services they are offering they often reply that there is a market price for the service being offered which they then have to offer to get the work. In addition, most solicitors will quickly tell you that the market price for the services offered has fallen.

It is only the most commoditised of legal services that will ever have a “market price”. Most legal services will continue to have a “market band”. In other words, most services offered are not unique and there is a band of price that can be offered at which a client might buy. If a firm charges above this market band then both the firm and the client know that the client is being ripped off. The client may pay the bill but is unlikely to return for future services and is likely to bad mouth the firm. In the difficult legal market today, there is probably more chance of a solicitor offering to do work below the market band. The client will accept the fee but is likely to worry about whether the work will be done properly and may therefore reject the quote. Solicitors should understand the market band but look to charge near the top end of the band to maximise profits.

Different pricing mechanisms

Over time there have been considerable changes to the way in which solicitors charge clients and the pricing mechanisms used. Historically, the most common way was to charge for the time spent. This was simple but encouraged inefficiency and has led to many clients simply wanting to negotiate ever bigger discounts on the hourly rate. More recently, many practice areas have moved to a form of charging which restricts the risk to the client by offering some sort of certainty. Examples of such fee arrangements include fixed fees, caps and ranges. Solicitors worry about possible large write offs of time if they perform matters inefficiently to a fixed fee but should recognise the possibility of increasing profits with fixed fees if they can improve the way in which they manage their own resources. Some clients are now saying that they do not want time based fees or fixed fees but they want to pay based upon the outcome of the matter. Measuring the outcome can be done in many ways including completion of the matter, achieving a deadline, meeting financial targets, limiting the amount of work to be done by the client etc. To win a piece of work today a solicitor must be willing to operate with a fee arrangement that is acceptable to the client and this means in turn that the solicitor must have far greater control over their own resources than when clients were always charged based on the time spent.

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Learning to sell the “value” and not the “price”

However a solicitor charges for the service being provided it is important at the time of quoting to not simply blurt out the price but to accompany the price with a “value statement”. If all that the client receives is a price they will negotiate it down but if they also have explained the value they are receiving the price should become secondary and may no longer be mentioned. At this point the solicitor should appreciate that they are too cheap and not too expensive!

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