John Chisholm helps law firms move from hourly billing to value pricing. A 25-year lawyer turned business consultant, he says the problem with the cost of legal services is not the amount. It is the unpredictability. Customers prefer the experience of and will pay more for price certainty. John shares how this single change can inspire a spirit of innovation and entrepreneurship in lawyers.
Value Pricing in Law Firms
- What is the most important thing you can share about pricing?
- No form of pricing is perfect. Pricing is an art.
- Just do it – give it a crack.
- There is no perfect price.
- Why are attorneys reluctant to apply their judgment skills to pricing?
- They are issues when it comes to negotiating their price.
- They want it to be right and they fear having a pricing discussion.
- They hide behind cost agreements and estimated hours.
- Why is value pricing a better business model as the law becomes more complex?
- Global financial crisis made customers more cost conscious.
- The cost of legal services isn't the problem.
- The unpredictability and bill shock are the issues.
- Having more certainty around price is important to the customer.
- The knowledge that lawyers used to sell is now available for free on the internet.
- Making informed judgments adds value to their client's business.
Innovation in Legal Firms
- What are some ways attorneys can create more value for the customer?
- The better firms are not waiting for problems to arise, but are involved in the client's business.
- They are helping them to avoid problems arising.
- Innovation in the legal profession bears little resemblance to what occurs in other industries.
- Customers do not want their law firms to be risk takers.
- How you deliver the solution is where the innovation can occur.
- The leaders of some Australian law firms are bringing more of an entrepreneurial spirit to the firm.
- If you can get people with other skills involved in legal and medical, it helps the firms and their clients.
- Legal firms in the States are one of the few professions where the business must be run by lawyers.
- Is the practice of value pricing in law similar or different to other professions?
- Many law firms benchmark against what other law firms are doing.
- Firms say they want to be different, but in reality, they want safety in numbers.
- The better firms now are looking at what other companies are doing to help them improve, rather than their competitors.
- Lawyers are not entrepreneurs. The field did not traditionally attract that type of person.
- The entrepreneurial spirit is now moving into law in Australia.
- Right now, the most popular form of alternative fee arrangement is discounting.
- Under the time billing model, you can give a discount, but it is illusionary. Time sheets will just show you have worked more hours.
Switching to Value Pricing
- How do you start a conversation with someone who may switch to value pricing?
- The firms who have experienced the most success have an internal champion.
- He makes sure they are serious about the conversion by asking questions.
- The firms who have been more successful have set a date to get rid of time sheets.
- Time sheets alone are a huge limiter on innovation.
- The obsession with efficiency and cost allocation leads to bad effects, including the lack of collaboration.
- How do you have a value conversation with someone who is switching to value pricing?
- What does the client want out of it?
- How much involvement do they want from John?
- John's why is to influence motivated professionals to make a difference.
- He needs to find an internal champion who he can influence.
- After Action Reviews are held with his clients.
- John needs to be satisfied that the client's why and his why are aligned.
- Many want to jump to the how; John brings them back to the why.
- Changing people overnight is unrealistic.
- The bigger firms are still improving their time-recording practices.
- There are individuals who do not need a consultant to understand they want to change; John can help them with the how.
- Jay Shepherd, Matthew Burgess and this interview make a good trilogy on value pricing in the legal industry.
- What is one of your best stories about creating value for a customer?
- A customer once paid him double his fee.
- They said thank you, wrote a nice letter and paid him more.
About John Chisholm
John Chisholm is a recovering third generation lawyer. He billed by the hour for 25 years and then started his own consultancy, Chisholm Consulting, in 2005. He specializes in strategy and pricing, primarily for law firms. He is also a Senior Fellow at the VeraSage Institute.