By Sue-Ella Prodonovich, Principal, Prodonovich AdvisoryIn my blog “6 things law firms need to accept”, I mentioned that law firms needed to accept that this was a buyer’s market. Now I’m here to tell you that this doesn’t apply just to lawyers; it’s the same for all professional services.
That means, you could well be told in 2018 that your prices are too high. It also means that getting your pricing right will be one of the keys to building a successful practice over the next 12 months. So, if you’re feeling powerless and confused about what to do, try following these 6 rules.
1. Understand the emotional side of buyingWhile professionals may deal in the analytical and rational, it’s always worth remembering that buyers are seldom analytical and never rational. Why else would people fork out hundreds of thousands of dollars for a different badge on a handbag or a motorcar? It’s because they see these as denoting higher status than other goods.
The same principles apply to professional services as they do to retail. People, including the hard nosed management teams of serious corporates, will pay a premium for services that they perceive as premium. Similarly, if they see something as run-of-the mill, they’ll expect to get it for the best price they can.
To make sure you fall on the right side of the equation, you need to understand the emotional side of buying. If you want help doing that, there are a lot of good books that can point you in the right direction.
You also need to understand what will make a client pay top dollar. And, whether that’s through specialising in a niche, providing a personalised service, or innovating, one thing is certain: clients always pay more for professionals who understand them.
If you’re being told your prices are too high, perhaps you’re simply not getting this right.
2. Don’t dive straight into fixed feesIn the current climate a lot of professional services think that all they need to do is move to fixed fees and the pricing problem will take care of itself. Anyone who has read any of my blogs in the past knows that I have very strong views on this. While fixed fees may be part of the solution, they’re not the solution every time.
Fixed fees tend to work brilliantly when the scope of work is known and its commoditised - for instance, a conveyance or a simple contract for a lawyer, or a basic end of year tax return for an accountant. In my view, fixed fees don’t work at all where the scope of work is unknowable and the work you’re doing is bespoke and highly skilled.
And, for most types of work, they’ll fall somewhere in between - effective sometimes and not others.
3. Start with the clientIn my experience, a lot of professional services firms get their pricing the wrong way around. What I mean by that is that they have no pricing strategy, so instead the starting point for what they’ll charge will be their remuneration policy.
If they pay a staff member $100,000 a year, they’ll use this figure to calculate how much they should charge to pay their employee, cover their overheads and take a bit of profit. That sounds logical, but doing it in isolation can lead to a raft of pricing problems, the effect of which can lead to a short change for both your practice and your client.
A better place to start is with the client. Figure out how you can bring them value, by delivering what they want and making their experience with you pain free. Once you’ve put some thought into that, you can then work backwards, figuring out how to utilise technology and your fee earners to deliver it in the best possible way.
By putting things in this order, you may uncover more profit than you could ever dream about rather than using salary as your starting point.
4. Work out where your value liesGood law firm pricing always comes by knowing the value you bring. In other words, what is your client really paying you for?
To work this out, you’ll need to engage in a bit of good old fashioned soul searching and problem solving. So what is it that your client wants from you? And what could they just as easily get anywhere else and at a cheaper price?
When you look at things this way, chances are you could take something off the table to bring your prices down without compromising your profitability.
For instance, are you spending too much time of admin? Could you push some of this back onto the client? Could you deconstruct the service you offer, breaking it up into many parts so that you retain the high value stuff and outsource the other parts somewhere else?
If you do have this option, I’d suggest you try taking it because it’s likely to lead you into building a network of referrers who pass you work in return - that is the stuff you really want to be doing. And that will help protect your fees and your profits, while still keeping your clients happy.
A new tool that can help law firms with pricing dilemmas or decisions is Price High or Low. Designed by Joel Barolsky for professional service firms, this is a very clever and timely application.
5. Look for the real motivation of clients
Chances are they simply may not have the budget. Perhaps there’s been a restructure. Perhaps they have a new CFO who’s stepped in and is slashing costs. Otherwise, perhaps they’re really just not the client for you because they’re simply not prepared to pay for the value you provide.
6. Talk about pricing with your clients
After all, in my experience clients price shop a lot less than most people think.
So if someone does say you’re too expensive, maybe they’re really trying to tell you something else…