Despite being the default way to charge clients and measure fee earner performance for many decades, a recent report has highlighted that many law firms – 43% – are offering alternative fee arrangements to the billable hour.
Another study found that although the fixed fee model is widely implemented, it does create issues, with 64% of UK firms saying that billing write-offs are on the rise as they are unable to justify the work undertaken.
The move towards alternatives is largely being driven by clients who are increasingly seeking out firms who offer – among other things – results, value for money and no unexpected extras.
So what does this mean for the billable hour and fixed fees, and do conveyancing firms really need to ditch it? Chris Pucci, CEO of case management provider, Osprey Approach, spoke to Shaun Jardine, a former CEO of a top 250 law firm, who now focuses on helping firms increase profitability by embracing value-based pricing, believes so.
“The billable hour model is out of date,” says Jardine, a non-practising solicitor. “Clients don’t care how long it takes someone to draft them a will, or buy them a house, but they do care about the outcome. Firms need to think about time in a different way; there aren’t enough meaningful conversations with clients about the transaction, which leads to client dissatisfaction if the bill is higher than expected.”
How does value-based pricing work?
A value-based pricing model can help conveyancing firms create the right environment for long term success – and it benefits lawyers too, freeing them of billable time and targets. Solicitors can have more open and transparent discussions with clients that build stronger, more trustworthy relationships.
Jardine explains that value “is contextual and opaque – it’s the client’s perceived value of the service they’re paying for, which isn’t simply about how long something took to complete.
“Determining a price for a service is not about the six minutes it takes me to tell you the answer, It’s the six minutes plus 36 years’ experience that create the value, which requires a change of mindset for lawyers when considering the price of their services.”
Value-based pricing offers a different value proposition and an appealing solution for both clients and lawyers alike. For the former, it offers fair value for services and for the latter, if priced properly, it offer a reasonable profit for work performed and experience delivered.”
Jardine says that it’s important to offer options to clients:
“In the same way that we’re presented with different cost options for a service, firms might consider offering clients a ‘shopping list’ of legal services, which helps to establish expectations from the start.
Lawyers need to be brave enough to ask for the right price based on the complexity of the work and the client, not the service. The balance is wrong if the client is receiving a gold plated service but paying for a tin one.
A good starting point for firms is to determine what a good, better and best level of service looks like, which helps the client to understand the different levels of service they can buy and what to expect for that service.”
Should conveyancing firms adopt the value-based pricing model?
Jardine argues that firms looking to achieve long term success need to embrace practices that will provide a secure future.
“Relationships are not built on charging for time, but on providing a price that is fair to both parties. In many cases, a change in mindset and operational practices is needed to build a more secure future for legal practices. Other than turnaround time, clients don’t care how long it takes us to do anything. They simply want positive outcomes.”
He points to “several benefits” of adopting effective business habits, including a value based pricing approach to legal services, which he says, “benefits your financial performance and long-term success by empowering your employees, providing your firm with a competitive advantage, and making your clients happy.”
Jardine believes that the key benefits to the wider firm include “the ability to differentiate your firm from the competition – being able to say to the client that you will always agree with them a price for the work that you carry out. It also enables leaders to increase their profits, since debtors reduce and cashflow improves.
“I’ve also seen value-based pricing successfully trickle through firms so that teams behave as teams – there’s no need to hoard work – and, since lawyers can preauthorise fees, they avoid discounting work and it removes the pressures of billable time and targets. Firms that adopt this model are likely to attract proactive lawyers and improve team morale.”
According to Jardine, there are distinct benefits to adopting the model for clients too:
“I’d say the top three benefits from the client’s perspective are predictability and certainty; transparency (no extras on the bill at the end); and building up trust within the client/lawyer relationship.”
Jardine is no stranger to value-based pricing, having assisted nine law firms in the design and implementation of the model into their businesses:
“There is not one size that fits all; it really is a question of finding out where the log jams are within teams and helping them overcome the reluctance to try.
In many cases, it’s an issue which arises from lack of confidence on the part of the lawyer, but that can be overcome.”
The role of legal technology
It’s important to consider whether law firms have the right technology, infrastructure, digital tools, and people skills to achieve a change is pricing strategy. As Jardine points out, “a simple audit will enable you to establish whether you can utilise your existing resources or whether you need to look at investment for your long-term success.
“Regardless of what digital tools lawyers require, it’s important that law firm leaders ensure they’re available and that they’re easy to adopt, which enables lawyers to be more productive, accurate, and effective for the long term.”
Jardine adds that a recent survey he commissioned found 77% of lawyers agreed that they would benefit from training in how to adopt value pricing, whilst 64% said that better use of data and information systems would assist them in doing so.
It’s true that having visibility of your existing financial position, write offs, profits, workloads and productivity, makes it much easier to establish base costs, which enable you to begin planning a value-based pricing conversation, not to mention the benefit – and importance – of having your financial information, data and processes in one centralised system.
Make your pricing strategy a priority
Jardine points out that if law firm leaders don’t have value-based pricing on their strategic to do lists, “they surely will when their competitors start doing so and, more importantly, when clients start asking for fixed prices. But wouldn’t it be better if firms take the lead on this, rather than reacting to client demand?”
He recommends that firms take action now and that leaders need “to prioritise pricing collectively. They need to be committed and not be afraid to speak to clients about pricing, not to mention turning clients away who aren’t right for the firm.”
Jardine also stresses the need to focus on “the importance of train and ingrain. It’s a culture change and it’s important to recognise that value pricing is an art, not a science, so you’ll inevitably get it wrong at times whilst you fine tune your new approach to pricing.
“The key is to learn from mistakes and analyse what went wrong, before making incremental continuous improvements for long term benefits. It’s important for teams to remember that getting things wrong is ok – it starts the path to success.”
This article was written by Osprey Approach, which provides cloud-based, case management software to SME law firms. With over 30 years’ experience in the legal software sector, Osprey’s system, implementation, and support services are designed to help make running a law firm easier.
This article was submitted to be published by Osprey Approach as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.
