Darius Hii, Director at Chat Legal, discusses pricing strategies for clients.
By now, the push for firms to consider a move away from the time billing model is without a doubt in full swing.
A factor for this push is to reduce the number of complaints received arising from billed amounts.
This article does not seek to convince time billing practitioners to change their way of invoicing, but rather to ask all practitioners (whether in the legal industry or not) – ‘what’s the value that my client receives from my services?’ and ‘how can I invoice in a manner that aligns with my client’s idea of value?’.
The mantra is that a happy client (with their invoice) is a dispute free client.
This question is likely the biggest reason for a client complaint about invoices.
When practitioners invoice in a manner inconsistent with the value that a client believes they receive, there will be a higher chance that the client is disappointed with the invoice.
Studies have shown that many complaints resulting from time billing is often due to a client believing they have been overcharged (whether due to inefficiency or over servicing).
On the contrary, complaints can arise from fixed price arrangements where there is a failure to provide a detailed description of the work agreed to be undertaken (and the client is subsequently let down with what they have received for the service fee).
Both circumstances arise due to client expectations not being met (whether due to more work undertaken than believed necessary or not enough work done for the fee) and can be avoided with the practitioner considering the quotes and invoices from a client’s perspective and ensuring their expectation meets the price/s to be paid.
It is on this point that fixed pricing offers an advantage as it provides clients with an opportunity to approve how much they are willing to spend before proceeding. The only real room for disappointment then, is when a client does not believe they have been provided with an appropriate level of service. This will arise when a fixed price job is based on a practitioner’s view of value rather than from the client’s perspective.
Specifically, practitioners who set prices based on an estimate on how long they will spend or how much they need to charge to cover any expenses and anticipated profits, will not often see eye to eye with what a client perceives as value. Most clients have no idea about the expenses that a practitioner incurs and will often perceive value as what they are getting in return for the fee they are paying.
For some clients, they will not see value in paying for travel costs for a face to face meeting given the connected world we live in. Others won’t see the value in paying for documents to be bound. Some may see no value in having a junior practitioner as part of the meeting. The hardest issue for practitioners therefore, is to determine how a client perceives value and to price accordingly.
Time billing still has a place for all professional service providers. While some matters are unable to be feasibly estimated due to endless variables, some clients may actually value the time spent by their professional and be happy to pay on a time basis. The question should, however, still be asked whether the amount to be invoiced for time spent is fair value for a client.
Fixed pricing based on a practitioner’s overhead, while less likely to result in a complaint, may still not be the best way to invoice if pricing based on client’s expectations is important. Rather, fixed pricing based on what the practitioner understands as being valuable to clients will more likely lead to expectations being met with the price paid by a client.
An issue with fixed pricing is often that the practitioner may not know the factors that a client considers valuable, and therefore, thought should be considered offering multiple (or tiered) packages.
That is, rather than just provide a single service fee, practitioners utilising a tiered pricing model can offer other packages on top of the base model that could include:
By offering multiple packages, practitioners provide clients with an option to allow them to select how they want the service delivered in a manner that they value most.
There’s no one right way to price clients. Choosing the right pricing methodology, however, can assist in reducing complaints about invoices. The important thing to ultimately consider is ensuring a client’s perception of value matches with the invoice sent to them.
Please contact the author if you have any queries about this article
Darius Hii, LLB/BCom (Finance), CTA is an estate planning and tax lawyer, who works alongside private clients and advisors to provide comprehensive structuring advice. The core of his work revolves around planning today for a headache free tomorrow and relates to personal and business succession planning. This often involves preparing holistic estate plans and ensuring they are structured to complement a client’s succession planning and asset protection intentions, as well as implementing tax effective business succession and restructuring strategies. He has developed a deep interest in trusts and taxation which complements his area of practice, and has spent time involved with payroll and land tax disputes with the Queensland Office of State Revenue. He founded Chat Legal Pty Ltd to provide legal services to busy individuals and families outside office hours and at a location convenient to them. You can connect with Darius at darius@chatlegal.com.au or via LinkedIn