Philipp Biermann and Andreas Panayiotou set out five actions you can take to improve your pricing outcomes and create significant value for your firm.
The perfect lawyer is customer oriented. He/she has a strong focus on client needs, offers solutions they really value, and can provide a comprehensive view of what will help. Unfortunately, this focus on the client does not necessarily lead to higher fees.
People who are more client-oriented give away almost three times more discount. We are not suggesting that you be less client-oriented, but that you don’t forget you’re highly educated and skilled professionals who have a lot of value to offer. Clients should be highly satisfied with your service, but rather neutral regarding your fees.
How you set, steer, and monitor your prices is key to this. Below, we have set out five actions you can take to improve your pricing outcomes and create significant value for your firm
1. Offer different rates depending on the situation
Situations differ, but the rates you offer don’t always. In some cases you won’t win the business because your rates are too high, whilst in others you will leave money on the table. Identify what drives differences in a client’s willingness to pay – it could be the competitive situation, how important the matter is to the client, or how urgently the work needs to be completed – and systematically differentiate target and walk-away rates depending on the situation.
2. Take advantage of psychological price thresholds
Economics 101 teaches us that demand decreases linearly with price. That is only partially true. This is because buyers (even procurement) are people, not robots. They have their own biases and psychology that drive their behaviour. These manifest themselves as psychological price thresholds, which is why products are priced to the nearest 99 pence, pound etc. Next time you price a deal for £35,200, ask yourself whether it will really make any difference if you charge £35,900!
3. Version your offers
Versioning is the most powerful tool you have when pricing professional services. If you offer someone three options, they will usually choose the middle option. Buyers avoid extremes: the Goldilocks effect. They also don’t make decisions in isolation: context matters. Introducing an expensive version can make all others look cheap. This is anchoring. Use these peculiarities of pricing psychology to your advantage. Version your fees based on what you do and the value you offer the client. We advised a Magic Circle law firm on this, and they have adopted it to great effect.
4. Prepare for negotiations
Successful pricing is 80 per cent preparation, 20 per cent execution. The cab ride over to the client isn’t the right time to discuss the pricing and negotiation strategy. Even worse is not preparing at all and being ‘flexible’ in the discussion. Do it the right way: analyse the situation; determine the right strategy and offer; set your target and walk-away price; and prepare the team for the negotiation. Finally, stick to your plan and execute it.
5. Increase rates for existing clients
You will get more impact from increasing rates to current clients than from winning new ones. But firms don’t realise this. When someone wins a new account he is a hero, even if the rates are bad. When rates to current clients are increased by three per cent, no one even cares. This should change. Screen your rate card inventory, and systematically increase rates. Try to increase rates annually, even if it’s only small. It should become a routine and accepted activity.