The Client Revolution

The magic of fixed pricing

Arthur C. Clarke famously said that "any sufficiently advanced technology technology is indistinguishable from magic." Does this adage — known as Clarke's Third Law — apply to pricing legal services?

Value pricing saves clients money, by eliminating the built-in waste that comes from billable hours. On the other hand, value pricing can easily make professionals more money, by allow for premium pricing, differential pricing, and charging extra for the certainty that fixed prices bring (think fixed-rate mortgages, which have higher rates than adjustable-rate mortgages).

Wait ... what's that? Clients pay less, but professionals make more? Sounds a lot like magic. Maybe you wouldn't consider value pricing to be a technology, but it certainly fits Clarke's definition of magic.

What do you think? Is it magic, or just sleight of hand? Please add your comment below.

Can lawyers learn from Apple's top designer?

In Objectified, Gary Hustwit's fine documentary on product design, famed Apple designer Jonathan Ive talks about the proper role of design: to do something useful, then get out of the way. Specifically, he's talking about the battery indicator on a MacBook Pro, and how it lights up only when needed.

What does this have to do with pricing legal services? Plenty. Here's Ive:

And if you think about it, so many of the products that we're surrounded by, they want you to be very aware of just how clever the solution was.... 

But at some level, I think you're aware of a calm and considered solution that therefore speaks about how you're going to use it, not the terrible struggles that we as designers and engineers had in trying to solve some of the problems.

Now substitute "lawyers" for "designers and engineers." When we bill by the hour, we focus on the time we spend doing the work, and on the work itself. Lawyers think that clients care about the time and the work, but they don't. They care about the results. They care about their problems getting solved. By obsessing (in our bills) on the hours we spent and the work we did, we are doing exactly what Ive is talking about. Instead of focusing on the solution, we are trying to get the clients "to be very aware of just how clever the solution was."

If instead you fix your prices, the focus shifts from the hours "to the calm and considered solution," as opposed to the "terrible struggles" (read "billable hours") we had trying to solve the problem.

Lawyers: Don't you want your clients to be impressed with how easy it was for you to solve their problems, rather than how how hard it was?

Do you agree? Disagree? Can lawyers learn from designers? Sound off in the comments.

By the way, the movie Objectified is available on iTunes.

BTW, this post was written entirely on an iPad 3G. Photo credit: Apple Inc.

Thanks for your business. Now get out!

On my way to and from the commuter train, in the middle of Boston's Financial District, I pass a photo-processing store. It's right next to the buggy-whip market. (I kid.) I mean, seriously: who actually goes to the photo store anymore? I guess it's people who want to take their digital photos and have them blown up and printed out and stuck in a frame. Because I don't think anyone's bringing in their Kodak and walking out with envelopes of snapshots.

To be fair, I went to this very store years ago to have holiday photo cards made up. But now it's much easier to use Apple's iPhoto store or Shutterfly to do this.

But I'm not writing about the photo store to make fun of anachronisms. No, my fun-making is limited to the Microsoft Word–written sign they have stuck in the door:

I've got nothing against posting your hours on the front door of a retail store, although you'd think they would spring for a proper professional sign (and en dashes instead of hyphens). My problem is with the closing time: 5:59.

What the what?

Why one minute to six? Why not six? I can only come up with one reason: they want customers to know that they're serious about closing time. Six o'clock to one person might be 6:03 to another; they don't want people confusing "six" with "about six." By putting the overly precise "5:59" on their sign, they make it clear that they don't mean "about six."

I guess I can understand why it could be a problem for the store personnel. As I said, the store is right on the main pedestrian-traffic route to Boston's South Station, which has a number of commuter trains departing at 6:15. I can imagine that many customers stop there at the end of the workday and linger in the store right at closing time, debating what frame to buy for the picture of their cats. By the time the staff can get the cat lovers out, it's 6:05. Maybe 6:10. This probably gets old for the photo-shop workers (not to be confused with Photoshop workers). So they came up with the 5:59 sign to discourage these lingerers. Can't blame them.

Yeah, I can. Watch me.

Signs like this one drive me crazy. (See "Don't come in from the cold.") This one might as well say, "Stop bothering us, customers. We want to go home." Particularly where this store is part of a completely dying industry, it doesn't make sense to put the convenience of the employees ahead of serving customers. You should be happy if some cat lover is trying to figure out which faux-silver frame to buy: it means you might still have a job tomorrow.

(You know, I thought about going inside just to ask them why they chose 5:59. But I didn't, because who cares what their justification is? It's the impression that the sign creates that matters more.)

Speaking of troubled industries, what kinds of things do law firms do that put the convenience of their employees over the needs of their clients? I can think of a few. Can you? Shout 'em out in the comments.

Competing by raising prices

Good article in Monday's Wall Street Journal about pricing strategy, something most lawyers never think about. The main premise is that most businesses shouldn't be competing on price — that is, by lowering prices. Instead, if you turn out a high-performance product or service, you should be able to charge a premium for that. The article is called, aptly, "Raise Your Prices!" and is written by Harvard Business School professors Frank Cespedes and Benson Shapiro and by consultant Elliot Ross. And despite my natural aversion to Harvard and to titles with exclamation points, it's a good article and one that all lawyers should read. Strangely, it is not (currently) hidden behind Rupert Murdoch's paywall, so you don't need a subscription to read it. (Maybe the Journal failed to take the article's advice.)

There's also an excellent sidebar piece, "Seven Mistakes of Poor Pricers," which briefly describes many of the same objections lawyers give me when I talk about Open Pricing. Read it, and see if any of it sounds familiar to you (such as "Cost-based pricing is easier to explain" and "Everyone else prices it that way").

Here's one of the money quotes (ignore my pun) from the main article on the benefits or pricing based on performance:

By competing on performance instead of price, you shift the battle to where your company's strengths lie—in the ability to deliver unique benefits. So-called performance pricers are adept at three core activities: identifying where they can do a superior job of meeting customers' needs and preferences; shaping their products and their business to dominate these segments; and managing cost and price in those areas to maximize profits.

But wait, you say. I thought all your talk about Open Pricing or fixed fees or value pricing was about saving the clients money? Why now all the talk about raising prices? My clients aren't going to tolerate that!

It's oversimplifying things to say that value pricing is about saving clients money. Instead, and much more importantly, it's about aligning your prices with the value the clients place on your services. Without that alignment, there is enormous waste and client frustration. Plus, the perverse incentives and unintended consequences of hourly billing artificially inflate client costs. So yes, you can raise prices for premium service and still save clients money.

Bottom line: clients will pay for value. If you're constantly discounting your fees, what does that say about the value you provide?

Private-practice lawyers: What do you think? Is there something you're so good at that you can command a premium? And in-house counsel: Are you willing to pay a premium for higher-quality service? Sound off in the comments.