Competition is becoming intense in the legal marketplace. More and more new attorneys graduate from law school each year with fewer and fewer job openings. Alternative legal service providers such as LegalZoom and Axiom continue to grow and capture market share away from traditional law firms. More than ever before, attorneys are being forced to find new ways to market themselves to attract and retain clients. The best thing you can do is to provide clients with as much value as possible, but to do so, you need to understand how much legal services are really worth.
One particularly important aspect of modern law firm marketing is pricing and fee structure. Offering alternative fee structures should be a given at this point. But if you can also find ways to decrease costs, you’ll improve the value of your services to clients and thus position your firm for success in an increasingly competitive market. This post gives some guidance on determining how much you should charge for legal services in order to maximize value without cutting too far into your profits.
Step 1 – Find Out What the Client is Looking For
This may seem like an obvious first step anytime a client is seeking legal services. But it shouldn’t just mean asking about the client’s legal issues and thinking about how you can help resolve them.
It’s really about finding out how the client is ultimately looking to benefit from legal representation. If you can hone in on that, you’ll be well on the way to delivering high value to your clients at a profitable price point.
Here are 4 primary ways in which clients seek to benefit from legal representation:
- Increased revenue or income – e.g. if the client is looking to gain proceeds from a lawsuit, develop new revenue streams through IP licensing, etc.
- Decreased costs or losses – e.g. if the client is looking to eliminate debts, reduce the settlement amount in a lawsuit, etc.
- Reduced risks – e.g. if the client wants to protect assets, reduce the likelihood of future lawsuits, etc.
- Enhanced reputation – e.g. if the client is seeking to benefit from your firms connections to investors, industry leaders or influencers, etc.
Always try to figure out which of these benefits your clients are looking for before you determine pricing on a particular matter. It will guide your actions and decisions throughout each phase of work, ensuring that you always focus on what matters most to the client.
Step 2 – Measure the Client’s Perceived Value
The next step is to measure how much value the client perceives in the representation, and put a number on it. But this is often quite difficult to do. The key is to separate value into its component parts, which include both qualitative and quantitative elements.
Quantitative Values (easier to measure)
- Meeting deadlines
- Staying within budget
- Increases in financial wealth
- Decreases in financial liabilities
Qualitative Values (harder to measure)
- Networking and connections
- Prestige and reputation
- Achieving strategic goals
- Peace of mind
As the attorney, your focus should be on figuring out whether the client is more concerned with qualitative or quantitative benefits and then prioritizing these items according to the client’s needs. This exercise will help you in determining a dollar amount that accurately represents the total value the client places on your legal services.
The quantitative aspects are fairly easy to calculate, while the qualitative measures are much more difficult and may vary significantly from one client to the next. However, the good news is that clients who are more concerned with the qualitative attributes are generally less price sensitive.
In order to estimate the dollar value of qualitative benefits, it may be helpful to look back at previous client relationships. Try to think of similarly positioned clients and evaluate their overall satisfaction level compared to the prices they paid. This will give you a good benchmark for future pricing decisions.
Above all, you should communicate openly with the client about his or her goals and values and work together to assess what the perceived dollar value of the legal services is for the client.
Step 3 – Determine a Win-Win Price Point
Lastly, once you have put a dollar amount on the client’s perceived value in the legal services, you need to determine your own price point. If you did a good job breaking down the perceived value of the legal representation and estimating a dollar amount for each component, this step shouldn’t be too difficult. All you need to do is find a number that creates a win-win so everyone goes home happy.
In any successful exchange of money for services, both sides need to feel like they are profiting. In order for the client to profit, the perceived value of the services needs to be greater than the price you charge. In order for the law firm to profit, the price charged for the services needs to be greater than the firm’s total expenses in rendering those services. This can be demonstrated by the following formulas:
- Client’s Profits = Perceived Value – Price of Services
- Law Firm’s Profits = Price of Services – Cost of Rendering Services
Taking this a step further, you can see that the final price of the services needs to be somewhere in between the cost of rendering the services and the client’s perceived value:
- Cost of Rendering Services < Win-Win Price < Perceived Value
No matter what you end up charging, you also need to do a good job of communicating with the client and demonstrating how you provided the value the client was seeking. Show the client exactly what you did, and speak to the ways in which it will help them achieve whatever they are looking for. And don’t forget to seek feedback whenever possible. The more you can learn from your clients, the better you will become at this entire process.
The process is not easy and will always involve some abstract estimations to come up with the exact numbers. But at the end of the day, as long as your primary focus is on delivering the benefits that the client seeks from legal representation, you’re likely to end up with a satisfied client who will become a longterm customer and a powerful advocate for your firm’s brand.