How did you establish your legal fees? Whether you bill by the hour, flat fee, or some sort of new-fangled alternative fee contraption, you probably got it wrong and to your disadvantage.
If you’re like a lot of lawyers, you probably surveyed the local marketplace, came up with a range, and threw a dart at the wall.
Let’s take a look at another industry. Jason Fried, who has a big voice in entrepreneurial software circles, recently offered some compelling thoughts on pricing in the recent issue of Inc. Charging too little not only devalues your service, it may compromise your profitability.
The argument goes like this: if you lower your price, more people might engage your services. But with more customers, will you be able to effectively service them? Will you need more support staff? Will you become overwhelmed and start missing deadlines? Will you be able to provide the standard of legal counsel that you are happy with?
Jason frames the issue pretty succinctly when discussing the launch of his recent iPad app, Draft:
With a price tag of a buck or two, I think we could have easily sold 10,000 copies of the software. On the surface, that sounds great. But not when you think about all the resources required to serve 10,000 customers.
A good number of those 10,000 people are going to need help. Some are going to complain. Some will request a lot of features. Some will ask a lot of questions… However, our main products sell for $24 to $149 a month. At those prices, we can afford to provide excellent service. Could we provide excellent service for many thousands of additional customers paying a one-time price of $1.99? Would that reduce our ability to service our $24-a-month or $149-a-month customers? We believed it would.
Let’s face it: in any group of customers, there will be those that are resource drains. And you don’t want those customers if they’re not paying what’s necessary for you to support the whole lot. They shouldn’t sink the ship.
Obviously, appropriate pricing for your service is a big topic, exceeding the scope of a blog post. But it starts with data and math. If you’re not tracking your hours on flat fee cases, start now. Examine the return of investment on each matter.
That said, tripling your prices at once isn’t a good strategy, as software company Zendesk can attest. But people do associate price with quality, so don’t be too timid to nudge your prices upwards and above what your competitors charge. You might just be more profitable.