In 2012, David Wells led Moores, a 40-lawyer practice, through a transition from hourly billing to value pricing. From his experience, he learned value pricing is more than a way to determine what to charge a customer. It is a business model, a philosophy, and a way of thinking. David shares how the new model changed the customers, employees, processes, and systems at Moores for the better.
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Switching to Value Pricing
- What is the most important thing you can share about pricing?
- When you charge by the hour, you are not pricing at all.
- There is a transformation that happens in a professional knowledge firm when it starts pricing.
- Lawyers who value price are more content in their profession.
- Lawyers in their office celebrate after a good proposal that is accepted, rather than only after a big legal win.
- The transformation of the personnel was unexpected and delightful.
- They were introduced to value pricing by John Chisholm in 2010.
- One of the principals was bold enough to suggest he would do it in his department on a small scale.
- In 2011, they decided to have a red hot go at value pricing.
- Twelve months from starting the trial, they were opening 50% of their files on value pricing.
- In 2012, they committed 100%.
- The transition was well-supported and a process.
- It has provided a competitive advantage.
- What is your advice for a firm that is making the switch to value pricing?
- It was not a grand design; they just tried different things, and they worked.
- If you just flirt with it, it is unlikely to result in success.
- Commit to a trial period; at the end, be all in or all out.
- Measure the results that you attain.
The Business Model of Value
- Why is value pricing a business model, not a pricing model?
- Moores Agreed Pricing is a business model, not a pricing model.
- To embrace value pricing, they had to make changes to their knowledge management system– the way they collect and shared their knowledge.
- A new set of competencies had to be developed to measure employees, to avoid basing it on hours.
- The new competencies are more innovative and encouraging for the employees.
- Systems for managing projects had to become more sophisticated.
- Business development also had to be modified to determine which customers would be most suitable.
- It has enabled a completely different practice than what they had 4-5 years ago.
- The results are:
- Happier customers.
- Different customers.
- Different employees.
- Total headcount is about 80 people, reduced from 120 in 2012, but they are more profitable.
- The ability to strategize upfront for value and implementing the value has resulted in parting company with some lawyers.
- The value-pricing model scales if you are committed and have buy-in from leadership.
- What are the three steps you use to set a price?
- Determine the objective.
- There is no point in Moores embarking on a process unless they know they can create value for the customer.
- Determine what it is the customer is hoping to achieve.
- Sometimes the result they hope to achieve is not the best result for the customer.
- If they cannot create the value needed, they will refer them to someone who can.
- Sometimes the cost of delivering the result might be about the same or less than the profit/value for the customer.
- If they agree on the objective, they then will scope the work.
- Determine the scope.
- Clarify between the professional and the customer what the contract is going to say.
- Get agreement upfront about the scope and then move to pricing.
- If you choose to operate a little beyond scope, you need to tell the customer you are adding value.
- Set the price.
- Determine the objective.
Setting a Price With a Guarantee
- Whose perception of value do you use to set a price–the customer, yours or both?
- It is a combination of both.
- An early mistake was not spending enough time understanding the customer's perspective of the value being created.
- Effort is needed to convey the value to the customer.
- How do you negotiate a price with value pricing?
- They do not negotiate in the strict sense of the word.
- They have a dialog with the customer and offer options.
- Options can be classified as negotiation.
- They will not discount their price.
- They will discuss what scope can be removed from the agreement, which reduces the value and the price.
- Customers know they can discuss the scope and price, which builds a strong relationship.
- What is the difference between guaranteeing the value vs. the service?
- You cannot guarantee a customer will get a specific result in court.
- When experimenting with the business model, they were careful to ensure the customers knew they were not guaranteeing the outcome.
- They can guarantee the level of service they provide.
- They discuss with the customer what level of service/quality he desires, as it affects the price.
- You can price (and manage) litigation by breaking the work down into stages.
- With the billable hour, you can get away with poor project management.
- You have to be able to manage projects well to value price.
- What is the opinion of the legal community in Australia about value pricing?
- A lot of lawyers are ambivalent as hourly rates have worked well in the past.
- Change is harder to embrace if you have had success.
- The challenges from those who oppose value pricing are as follows:
- It works in a small firm, but not a large one.
- You cannot know what costs should be awarded in a court scenario if there is no timesheet.
- The timesheet is not necessary for a practice.
- The idea that the value comes from the input of time is absurd. (Labor Theory of Value).
- The capability of tracking time has been switched off in their practice management system.
- Why are attorneys afraid to use their best skill, judgment, to set a price?
- Kirk first realized this distinction in an interview with Jay Shepherd.
- Many lawyers are not aware of how much good work they have done for a customer.
- Their confidence and skill level have improved based on value pricing.
- You need an ego to price for value; have confidence in your intellectual capital and how you leave a customer in a better place.
- When that happens, it improves you as a person and a professional.
About David Wells
David Wells is the managing principal of Moores, a legal practice in Australia. They started out as a traditional legal practice. In 2012, David led them to value pricing. They are the largest value-pricing firm in Australia, with over 40 attorneys. His background is in commercial dispute resolution, which includes mediation and litigation. As an avid cycler, he has cycled through the Alps in France.
- Firm Website: moores.com.au
- David on Twitter: @moores_au
- Email David: dwells@moores.com.au
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