How not to win business: a guide for professionals
Tip no 7 in the tongue-in-cheek series is: cling to the hourly rate
"Dear Valued Client,
Now that your case is concluded, we have pleasure in enclosing our account.
As you will see, we have made no effort to relate our charges to the value of our work. Instead, we have recorded the time taken to do it in neat six-minute units and multiplied them by a rate of charge per hour which delivers what we think (or at least hope, we’re never entirely sure) is a decent profit.
Beyond the basics, we gave no thought to how we processed your work. The longer we took, the bigger the bill, so why be more efficient? Turkeys. Christmas. Get our drift?
We acknowledge that charging this way has made your bill completely unpredictable. You have lived with months of stress, wondering if you would be able to afford it. Now you know. We feel your pain intensely. Do bear in mind though, that what doesn’t break you makes you stronger. We have not charged you for this insight.
A stamped addressed envelope is enclosed for your remittance. You will see the charge for it itemised under ‘Disbursements’.
Prompt settlement would be greatly appreciated, particularly as you are one of the few clients we have left."
A caricature, I know, but is it so far removed from the message we give clients every time we bill by reference only to time?
The billable hour is far from dead. The Last Honest Lawyer, a blog I thoroughly recommend, likens its survival of the recession to that of lizards and crocodiles after the dinosaurs were wiped out by an asteroid. It survives primarily because of client inertia and because it is profitable. But it is in retreat. Beneath the surface of nearly every firm charging by hourly rate you will see countless examples of fixed, capped, discounted and written-off fees in response to client demands to get real.
Alternatives may have emerged at first as a grudging reaction, rather than a desire to innovate. But progressive firms now embrace their potential to create competitive advantage by providing certainty, demonstrating a willingness to have skin in the game and establishing a clear link between value and price. An hourly rate can never create that link. Hourly billing, where you can still get it, may be profitable, and in limited circumstances may suit both sides, but in general it is high risk. The holy grail for all professional firms is long-term valuable relationships. Clients have never been more mobile. Fail to articulate value clearly and you will always be vulnerable to more imaginative and savvy competition.
Value-based pricing is a big area and I cannot do full justice to it here, but for impressive examples of its potential, look at the Association of Corporate Counsel Value Challenge, an initiative from US corporate in-house counsel and their law firms to create value-based billing arrangements that benefit both sides: www.acc.com/valuechallenge. There are lessons here for every type of practice, including that charging in innovative ways means being equally innovative in the way you do the work if you want to maintain or improve margin.
No doubt the ACC had this observation of Benjamin Franklin at the forefront of their minds: "I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things."
Stephen Gold was the founder and senior partner of Golds Solicitors, which grew from a sole practice to UK leaders in its sectors. He is now a consultant, non-exec and adviser to firms nationwide.
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