Pricing continues to be a massive topic in the legal industry.
The reason why it’s such a big topic is because there are now some great alternatives to the traditional way of using billable hours.
There are things like fixed pricing and value pricing, but often lawyers feel quite nervous about using these alternatives because there’s no set formula on how to use them successfully.
Using billable hours feels easy, right?
You record the amount of time you spend on a matter, and you send a bill for that amount.
There’s a straightforward formula to working it out, and lawyers like that.
My motto when it comes to pricing is always based on value.
But when it comes to value pricing, and figuring out what the value is to a client for getting them a specific result, it becomes more complicated in a lot of lawyers’ minds.
So they shy away from it and go back to billable hours, because it’s easy.
I want to share with you the five steps that I’ve used in my law firm and in my business to come up with pricing that’s based on value.
Before I go into those five steps, let me just say this…
Nothing will attract a specific type of client more than price.
So with that, let’s get into the five step framework that I use to come up with a price for my services and solutions.
#1: Identify the problem
It’s important that you get really clear on what your ideal client’s problem is.
When it comes to a legal service, the only way you can come up with a set value price, is to create a service that is for a specific type of client with a specific problem.
The reason why a lot of lawyers struggle with value pricing, is because they’re trying to come up with a one-size-fits-all price.
But that’s just not how value pricing works.
The first step is to understand who your ideal client is and what their problem is.
You need to be able to articulate that clearly in one sentence.
For example, your ideal client is a tradie, and their biggest problem is getting paid on time which results in cashflow problems and they struggle to pay their bills.
#2: Look at similar purchases
Now that you know the problem you’re trying to solve, have a look at what your client has purchased in terms of products and services, to try and solve that problem.
Once you have that base line, it will really help you to understand the value they place on having that problem sorted.
There may not be anything that’s totally comparable.
If not, think a bit more holistically about how much they pay to solve other problems of similar significance in their lives.
This is a great thing to brainstorm with your team.
What are the problems they have that are of similar significance, and how much are they paying to sort out those problems?
#3: Look at the before and after
Think about what your client’s life is like before they come to you to have the problem solved, and then after you’ve fixed it for them.
Really consider that after picture and think about what that’s worth to your client.
Again, this is a great thing to brainstorm with your team.
The answer won’t always be immediately apparent, and perhaps that’s why you’ve shied away from value pricing in the past.
So go and brainstorm it.
Think about the improvement you can bring to someone’s life and what that improvement is worth to them.
#4: Check your other pricing
Have a look at the other services you offer in your law firm and much you would typically charge for them.
If you don’t have set or fixed or value prices for other services you offer, look at what you’ve charged on average for the last five matters that you’ve had for that service.
Create a hierarchy of all your services based on prices.
At the bottom, you’ll have your free offers. Things like free consultations or if you’ve got things like free guides or checklists on your website.
Then it’ll go up for each thing until you get to your most expensive offer.
Once you’ve got that hierarchy, you’re ready for step 5, which is…
#5: Compare
Take the service that you’re trying to price and see where it fits in your hierarchy in terms of value.
Once again, this is a great thing to brainstorm with your team, and ask them where they think it fits.
If it’s more valuable than this, or less valuable than that.
And then you get to the final step.
The final thing to do is write down five different prices that you could possibly charge for the service, based on all that great knowledge that you’ve now got.
Let’s say you pick $5,000, $10,000, $13,950, $15,000, and $20,000.
Next to each price, rate it out of 10.
10 is a price that feels really good to you based on the value that you think you’re providing to the client, and 1 is a price that feels out of alignment with the value that you’re providing.
The one that gets the highest score out of 10, that’s your starting price.
The great thing about having a set price like this is, you know how many clients you need to attract in order to hit your revenue target.
Say your revenue target for the month is $50,000 and say you’ve arrived at the price of $10,000 for your service.
You now know that you need to find five clients every month to hit your revenue target.
That’s great knowledge, rather than just doing your hourly billing and flying blind and hoping that it all just works out by the end of the month.
One more thing you need to think of, is that once you’ve set a price, it’s really important to keep a close eye on your P & L every month.
You need to be making sure that the profit margin on that service at that price is acceptable.
If it’s not – particularly if the profit margin is too low and you’re not making enough money on that matter – then it’s simply a matter of increasing the price.
You don’t need to get all crazy about it, it’s not about perfecting it.
But you probably won’t get the price perfect the first time.
In my businesses, I’ve changed my pricing so many times until I’ve got it to a place where I’m comfortable with it.
It’s always a bit of an experiment until you hit that sweet spot.
Just be aware that it’s a bit of a journey, and the first price you come up with will most likely not be the final one, but at least it’s a first step.
If you’re interested in scaling a law firm, or building, designing and selling online legal solutions and learning about how to do the marketing around that, then there’s plenty more for you to discover over in my Savvy Lawyers Facebook group.
