How to effectively increase the price of law firm services without losing clients
It is no secret that one of the easiest ways to lift the profitability of a smaller law firm is to increase the price of what you do.
I have found that when I talk to the principals of smaller law firms about increasing their prices, they often feel that I am suggesting that they will have to increase them substantially to achieve much of a lift in profit. This is simply not the case.
Let me explain with an example:
Say your practice is a two partner firm with annual billings of say $1,200,000 and making an annual profit of say $300,000($150,000 per partner).
If you were able to lift prices across the board by 10%, this would equate to an extra $120,000 in fees that would flow straight to profit.
Your firm would now be making $420,000 ($210,000 per partner) which would represent a 40% lift in partner profit!!
But I can’t charge more in the current economic environment!!
OK, so the maths is pretty straight forward. A common comment that is made though, is that you can’t charge more because all of your clients would leave.
What is a solution?
While presenting at the Queensland Law Society’s Annual Symposium, I attended a number of sessions myself, including an excellent session by Richard Burcher, an international pricing consultant.
Richard also restated the point that you increase the price was a key way to lift profitability.
An excellent suggestion of Richard’s was to give your clients two options when you price a matter.
For example you could give your client a variable fee and a fixed fee alternative.
Again let me use an example:
Say a client has asked for a price on a matter. You are not sure what it will cost so you give them two alternatives:
1) A variable price of somewhere between $600 and $1000
2) A fixed price of $1100
What option do you think the client will pick?
Interestingly, in studies of this, in 85% of cases the client went for the fixed fee, even though it was higher.
Do you have services where you could test this approach and see if could work for your practice?
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