Pricing yourself into the market

Price-sensitive clients, cut-throat competitors and the march of online
legal services have put a spotlight on the need for a more strategic approach to pricing.
The billable hour is giving way to the fixed-price deal – isn’t it?

Car crash

A quick scan on the internet shows the car crash at the commodity end of the market. Firms offering wills from £34.95 (with free rewrites), Which? is at £89 and charity Will Aid suggests a minimum donation of £90.

Some solicitors offer single wills at £165 plus VAT where there are “no tax or trusts complications”.

Unfortunately, these offers anchor client perceptions at the low end. Put yourself in the client’s shoes – what would you choose? Yes, it’s a race to the bottom.

Some firms erode margins further by also offering a free meeting. In other areas of legal practice, solicitors recognise that the clients value the opportunity to talk face-to-face, ask questions and share personal information and have developed services where the client only pays for ‘face time’ meetings.

The importance of perceived value is the crux of the pricing conundrum. Price should be based on what the client perceives as value – not what it costs to deliver.

A recent SDT decision also showed the importance of clarity and certainty. It is not acceptable to offer an estimate and indicate that there may be extras – even if they are hidden in the small print. A fixed price is a fixed price.

But where there are too many variables and unknowns, it is possible to provide clients with information about options and alternatives. In the business world, consultants might charge a scoping fee to show clients a path through their issues and alternative paths forward. Clients are not stupid. They are used to consumer web sites where they compare different services and the elements that are important to them. They may not understand these options until they study such comparisons and learn what is and isn’t included.

So information, education and tangibility come into the equation. Websites come to the rescue here – with the ability to provide explanations about what clients should know about the legal process. They are then empowered and more confident in an area where they may feel vulnerable and at the mercy of the ‘expert’ professionals.

Clients cannot value what they cannot see – so make sure they understand what is going on behind the scenes.

The way lawyers talk about price is important. When clients make initial enquiry calls they often lack the knowledge to ask about anything other than price. A skilled lawyer will focus on building rapport and trust, showing interest and explaining a range of prices confidently, rather than jumping in defensively to offer the lowest price deal.

Fixed price

With the billable hour, the risk is entirely with the client. It’s an open-ended arrangement where the client must trust what the solicitor will do to solve their problem.

In the brave new world of legal services, that risk transfers back to the solicitor – he or she must estimate the likely cost and offer a fixed price for that service.

But clients may be happy to pay a premium in a fixed price for the removal of risk.

The solicitor has to be skilled and disciplined at managing the work – using a case or project management system and/or pricing software to ensure that the costs stay within those guaranteed at the outset.

When clients perceive that all services are
the same, they will naturally choose the lowest
(or lowest but one according to psychologists).
If firms do not have the volume of work – and the infrastructure to support it – to provide a lowest-cost service then strategically they need to look at how to differentiate their service.

This can be done by the creation of a perceived difference through the adoption of a brand strategy, or it could be by focusing on the added-value you offer in a different proposition as a result of specialist expertise, experience, relationship or service delivery. This is the basis of a niche strategy.

Market segmentation

• Mr Able wants a will. He doesn’t have much money, but he wants it to go to a charity for his former army regiment.
• Miss Busy is grieving for her late mum. She’s trying to work full time while looking after her two children. She doesn’t have much cash, or the time to sort out the probate where she and her sister are the only beneficiaries. Her mum owned a house worth £249,000 and there’s probably another £50,000 in savings.
• Mrs Confused has a portfolio of properties in the UK and overseas – the last valuation put the capital value at about £1.6m. Rental income is paid direct into an overseas account. She has many shares in her late husband’s company, which the new owners are about to float. She wants her grandchildren to inherit everything. She is at a loss on what to do about taxation and is confused with all the official paperwork she receives.

These summary client personas underlie an important idea in pricing – the need to segment the market in terms of what it is clients need and the value they might perceive in getting help. There is no one size fits all.

Mr Able could probably get a free will by contacting the charity – or he might download
a form for less than £50. Miss Busy probably
needs a fixed-fee project – payable after the work is completed – on which she can get her sister’s agreement.

Mrs Confused will probably be happy paying a fixed (but not low) amount to sort out the shares and another for her estate planning – she may even understand the need for a modular approach to each stage of the work – and then might value a monthly retainer for ongoing advice on managing the portfolio and the continuing paperwork.

While solicitors need to know exactly how much it costs to provide a service, this shouldn’t dictate the price. It is one input.

In some cases, it is no longer possible for firms to provide a service at a price that both matches the client’s perception of value and delivers a profit.

So the firm has a number of choices. It can invest in increasing efficiency so that it can provide the service at the price the client wants to pay. It can decide not to provide that service any more. Or it can look at packaging up the service or developing a new one to deliver more value so that clients in a particular segment that will pay a price that yields a profit.

Most firms will have – in their financial systems – a huge amount of data on what they have charged clients (i.e. the cost plus a profit) with different types of assets, issues and needs. This data needs to be mined so that solicitors can make commercial decisions about the likely costs of future work that meets similar parameters.

There may be some losses as estimating skills are developed – there needs to be sufficient volume to accommodate the swings and roundabouts of gains and losses. SJ

Principles of pricing

1.  Pricing should be based on the value to the client, not the cost to you.

2.  Prices should be tangible, so your clients can see what they get for what they pay.

3.  Prices should be comparable – on terms that you control.

4.  Price differentiation is the key enabler of profit.

5.  Pricing communication shapes the client’s perception of value.

6.  You must be prepared to lose some sales to increase profits.