Price is more than a number. It is part of how a lawyer communicates value to the customer. To unpack this principle, Jay Shepherd, an employment litigation attorney, compares how a customer perceives an hourly rate vs. a fixed price. He says knowledge instead of activity is more valuable to the customer. Value pricing enables the customer to purchase what he wants in a manner he truly enjoys.
Hourly Billing in the Legal Profession
- What is the most important thing you can share about pricing?
- Intentional pricing vs. accidental pricing.
- You (the professional) and the customer intend to do the work at a certain price.
- Hourly billing is the worst kind of accidental pricing.
- What types of pricing are found in the legal profession?
- Mostly hourly billing.
- Why is hourly billing not good for the customer or the professional?
- Customer – Hourly billing creates a conflict of interest between the lawyer and the client.
- Professional – If you are good at what you do, you are leaving money on the table.
- Three things determine hourly rates in the legal profession: Location, number of attorneys and years of experience
- How do you answer the question, “What is your hourly rate?”
- I do not have one. (An hourly rate is not a price.)
- A price should answer the question, “How much is this going to cost?”
- Why do you think hourly billing is insane?
- Professionals use an hourly rate because of fear.
- We suck at estimating how long something will take.
- If you write off hours, then the value is not in the hour.
Practicing Value Pricing in Law
- How do you price for the uncertainty in legal matters?
- The subjectivity of setting a price requires experience.
- The more experience you have, the better you price.
- What are some practical steps to transition to value pricing?
- Get comfortable with the concept of value by studying it (mental shift).
- Do a pilot or trial program with new customers to gain experience.
- Stop tracking time and set prices for everything (burn the ship).
- Collaborate with others when setting a price (pricing council).
- How do you approach having a value conversation with a customer?
- I need to get information about the client, their business and the problem.
- One, what is it worth to the customer to solve this problem? (You have to help the customer figure it out.)
- Two, what is it worth to you (the professional) to do the work (profit, likable client, interesting work, etc.)?
- What are some of the questions you consider during a value conversation?
- Is this someone with whom I want to spend a lot of time?
- Do they have experience working with lawyers or not?
- How important is this matter to the customer?
- How hard is it to find expertise in this matter?
- Do I have previous experience with the customer?
- How much do I want to do this work?
Subjectivity and Pricing
- The price helps educate the value of your work to the customer.
- Attorneys have to use judgement (subjectivity) to practice law. Apply the same skill to pricing.
- Prices sell knowledge. Hourly rates sell activity.
- Three types of legal knowledge: Substantiative, procedural, judgement
- What is the best value you have created for a customer?
- I was able to settle a non-compete case in three phone calls because of my knowledge, network and expertise.
- You cannot capture the value of knowledge in any increment of time.
About Jay Shepherd
Jay Shepherd is a Senior Fellow at the VeraSage Institute and a recovering attorney (trade secret and employment litigation). He operated Shepherd Law Group for a 15 years, and “shepherded” the firm through a transition from hourly billing to value pricing. He is the author of Firing at Will.