Aug 23, 2009

Don't Let Pricing Be the Evil Stepsister of Your Law Practice

If Prince Charming had been a potential client, then Cinderella's evil stepsisters had the right idea.  When the Prince embarked on his mission to find the owner of the glass slipper and make her his bride, the stepsisters made sure that they didn't miss out on an opportunity to marry into royalty.  So when the Prince and his entourage galloped by, they invited him into their house, touted their virtues and even kept the competition away by locking Cinderella in a closet.  But came the moment of truth, neither stepsister could close the deal because the shoe didn't fit.   Likewise, even if your marketing strategy succeeds in bringing clients into your office, like the evil stepsisters, they'll walk away without signing your retainer letter if the shoe -- or in your case, the price -- isn't a perfect fit.

Price is a critical component of marketing strategy, and which that many lawyers overlook.  Of course, in some situations, you may not have much leeway in setting price.  In some practice areas, such as social security benefits, lawyers are not allowed to charge clients up front, while in other practice areas, such as personal injury, prevailing practices (such as fronting the costs of case) make it difficult to deviate (such as requiring personal injury clients to pay a retainer up front).  Likewise, for some prospects, the only price that fits is "free;" they're more interested in squeezing free advice out of you than hiring and paying for you. 

Exceptions aside, the majority of lawyers retain significant flexibility on pricing services.  And particularly now, at a time of less than plenty, you may find that tweaking what you charge for services may help you close more deals.  Below are some examples of pricing trends in the legal profession as well as some innovative pricing strategies from the retail world to inspire your imagination:

Flat fees and alternative billing:  As the Wall Street Journal reports, increasingly, large corporate clients are demanding flat fees and alternative arrangements.   A major benefit of flat fees is that it keeps costs down.  Those clients quoted in the article report an average 15 percent cost savings from flat fees, making flat fees the "glass slipper" for many clients in a down economy.

Though from a lawyer's perspective, you may not be interested in taking a 15 percent bath on income, bear in mind that flat fees may also enable you to make sales that you otherwise wouldn't.  Consider air carrier Jet Blue's recent variation of a flat fee strategy: a $599 flat fee ticket entitling customers to fly to any of Jet Blue's 57 national and international destinations, so long as all travel takes place between September 8 and October 8, 2009.  Attorney Jay Shepard highlights the benefits of Jet Blue's strategy at his Client Revolution Blog:

Now let's play law-firm lawyer: "But what if someone takes advantage of JetBlue and flies twice a day, every day during that month? That's 60 flights for $600? How can JetBlue make a profit on ten-dollar flights?"

Dumb question. First of all, no one's going to do that. Or at least not enough people to make a difference. (Maybe one guy, hoping to get on the "Today Show.") Who the heck wants to fly that much, even on a comfy JetBlue plane with individual TV screens? To be sure, some people will take an unusually high number of flights, lowering JetBlue's average revenue per flight for those passengers. But it's just as likely that some people will take only one flight (or even none), increasing the average revenue per flight. And even if it doesn't come out even, it's a safe bet that JetBlue will attract enough new customers to make up the difference -- and some of them will become raving fans of JetBlue. And they'll tell their friends and relatives. (Or get on the "Today Show," attracting more publicity and more passengers.)

Are there ways that you can incorporate a flat fee structure into your law practice?  If you're nervous about losing money, you could offer a flat fee for a limited period of time to limit any adverse effects.  Or not.  Because you might discover that the flat fee that fits your clients' needs is comfortable for you as well. 

Freebies:   No one wants to work for free.  But offering freebies as part of your service makes clients more likely to recommend you to others and come back themselves.  At Duct Tape Marketing, John Jantsch writes about a restaurant he tried out which sent him home with a free pint of soup.  That little freebie made enough of a difference to inspire Jantsch to write about the restaurant and most likely to return.

What can add on to your services to give clients incentive to return?  For example, what about a voucher for free "check up," where you'll review an estate plan or incorporation or terms of a custody agreement at some time in the future at no cost?  The voucher gives clients something of value as well as incentive to come back to your firm.  Plus, if it turns out that something has changed -- perhaps tax laws that apply to estate plans or the make up of a client's LLC -- you'll get some extra business as well.

Premium Pricing - The Five Dollar Slice:  It may be hard to believe, but even in a down economy, premium pricing may prove the right fit for some clients.  As this New York Times story highlights, charging five dollars a slice for a piece of pizza hasn't hurt business at Brooklyn-based Di Fara's pizzeria one bit.  As one customer quoted in the article exclaimed,

"It's [the pizza] is unbelievable...you're going to pay for quality."

Incidentally, this customer, an off-duty policy officer, waited an hour and twenty minutes for two pies. 

As relevant to your law practice, perhaps there are small touches that so greatly improve quality that you can justify charging more.  For example, in a down economy, many clients are nervous about keeping their jobs and are hesitant to take time off from work to meet with a lawyer or even to use a work phone or computer to communicate with an attorney.  If you offered routine weekend and evening office hours, clients might readily pay more for this convenience, particularly if it would enable them to avoid jeopardizing their day job.

In addition, premium pricing is also matter of context, with one client's high-end price might be another client's bargain.  As Mayor Michael R. Bloomberg remarked:

 "The real question, relative to the local economy, is whether people are trading up from a $2.75 slice or down from a $25 entree."

For some clients accustomed to paying bloated rates large firms, transitioning to a solo or small practice, even when they charge premium prices is a welcome surprise.  In fact, if you market to dissatisfied biglaw clients, you may need to raise your rates a bit or your target clients might disregard your prices as "too good to be true."

Serendipitous Pricing:  Lawyers are analytical and want to reduce pricing to a science.  But just as the fairy godmother's magic made Cinderella's foot a match for the glass slipper, there's a serendipitous element to setting prices in the real world.

The Washington Post describes the role of luck and serendipity in pricing houses for sale.  For example, one real estate agent uses prices ending in "944" for her listings -- it's the model number of the brown Porsche that she drove around town when she started selling houses.  Moreover, there's actually evidence that houses that appear more accurately priced (as opposed to ending in zeros) sell more quickly.  From the article: 

About two years ago, Redfin analyzed the list prices of all the homes in one county in Washington state and found that properties with a list price ending in "500" sold for more than slightly more expensive properties whose price ended in three zeroes. They also spent slightly less time on the market, an average of 69.72 days, compared with 70.25.

Redfin's findings were backed up by academic research published in March by Cornell University professor Manoj Thomas....After examining home sales in Florida and New York, [Thomas] discovered that houses with more precise list prices tended to have higher sale prices. In Florida, homes listed with fewer than three zeros at the end resulted in a sale price boost of about 0.2 percent. And for every extra zero added, the sale price fell about 0.09 percent.

Since most lawyers don't use flat fees, these pricing strategies might not transplant as well.  At the same time, using any edge to set your prices apart from competitors can't hurt.  (Just remember, that lawyers are ethically obligated to charge "reasonable fees" so naturally, make sure that any prices that you set will pass muster under ethics codes).

Conclusions:  Tools like SEO, blogging, client newsletter and the myriad of others which I've discussed at this blog are only part of the marketing equation.  Using these tools effectively will bring clients to your door, maybe even convince them to pay for a consultation.  But ultimately -- and also like a wicked stepsister -- prices that don't fit your customers needs will sabotage your best marketing efforts.