In his blog (“the [non] billable hour“), Matthew Homann (lawyer, mediator, blogger and entrepreneur) recently wrote a blog entitled “Let Your Clients Decide Your Price” (March 9, 2009).  In that blog, Matthew challenged lawyers to let their clients set the price of the work they do – after it is done!

This is revolutionary, not only for the legal industry, but in virtually every industry I can think of.  Matthew says he uses this pricing model for all of his consulting work.  He even provides a sample invoice which he uses for his own clients.  Clients decide, no questions asked!  Matthew states that, even though his clients decide how much to pay, he requires payment and feedback within 21 days after clients receive the invoice.

Now I’ve been trying to think of where else this kind of billing alternative exists.  Nothing comes to my mind immediately.  Rather, as they taught me in business school and in the school of life, suppliers of goods and services set their prices beforehand.  They do so in light of their own costs (the bottom), competitor costs (the middle), and any premium they can charge because of some kind of competitive advantage (the top).  Prices are set so that clients can shop around as well to figure out what exactly is the market value of the thing they’re purchasing.  So in certain industries, it’s clear that his recommended model may not work.

Now what about the potential disadvantages with Matthew’s model.  I’m sure he knows them well.  What if clients continue to take advantage of the service provider?  What if clients don’t pay (hence, lawyers take retainers up front to help them ensured getting paid and having reserves for when future legal services are needed)?  What if there is bickering at the end about the true value of the legal services provided?  Is this going to get us any closer to determining what’s a fair billing model in the eyes of both the lawyer and the client?

Granted, Matthew’s model may make sense in certain industries where it’s relatively easy for the consumer to determine what the price is of the thing they’re purchasing.  They can shop around, get a sense, and then make a judgment call.  They can punish you by giving you less.  They might even reward you by giving you more.  Maybe it’s better for established clientelle who have no difficulty paying and who appreciate the value of your services.  I’d be more comfortable doing something like what Matthew recommends in these limited circumstances.  But I wouldn’t open up my entire practice to this billing model any time soon…

Remember that not everyone is at the same stage in their life.  Some of us are just starting out our practices and will have some hard lessons to learn along the way.  Some of us have decades worth of experience, a solid reputation, established clientele and a large referral base, etc.  So I would take what Matthew says with a grain of salt before diving in too soon…

written by admin \\ tags: alternative billing, billable hour, blog, business school, competition, competitive advantage, competitor, entrepreneur, ger, homann, lawyer, lawyers, Let your clients decide your price, mediator, pricing model, referrals, reputation, retainers, s, sample invoice, sampling, service provider, true value

As they taught me in business school, when you’re analyzing whether to get into a particular industry (or if you’re already in one), you should know what the key success factors are and strive to outdo your competition with respect to those factors.

Based on the the Michael Porter analysis I previously undertook, I was able to identify several key success factors for my local solo / small firm lawyer industry.  Those key success factors included having: (1) competent lawyers and staff, (2) an effective business management system, (3) a strong brand name and image, (4) a convenient location, (5) well-maintained and high quality facilities, and (6) specialized service offerings. Law firms in the targeted law firm industry which have or strive to have these key success factors will be more competitive and hence more successful than those which do not. Each of these key success factors will be examined in turn.

1. Competent Lawyers and Staff
For a law firm to be able to attract and retain clients and to portray the right reputation, it will require competent lawyers and staff. Such individuals should have sufficient knowledge, skills, and experiences to help clients solve their problems or facilitate transactions. Hard working lawyers and staff should also be smart working staff, which means that they should constantly be looking for ways to improve the efficiency and effectiveness of how they do work and their final end product.

2. An Effective Business Management System
Essentially, 80% of running a law firm revolves around business management, while the other 20% involves performing legal services (source: Developing & managing a successful law firm, p. 4). This business management system should such cover areas as:
• Strategic Planning;
• Marketing and Promotion;
• Financial Management;
• People Management;
• Administrative Systems (i.e. client identification system, tickler system, substantive system, and client and staff system);
• Managing the Production of Legal Services; and
• Information Management System.

Essentially, the business management system should ensure that all aspects of operating the law firm have been accounted for, are monitored, and progress is being made towards improvement.

3. A Strong Brand Name
A brand name is the totality of thoughts, feelings, associations, and expectations that members experience when exposed to a business’ name, term, symbol, design, or a combination of these elements that is intended to identify the business’ products or services and differentiate them from competitors. A brand is a critical component of what a company stands for: it implies trust, consistency, and a defined set of expectations.

Ultimately, a law firm’s brand name is about communicating the values, mission, and vision of the law firm to the various stakeholders. A good brand for a law firm can do three things: save time, project the right message and provide an identity. Holding the leadership position in a market requires that a law firm strategically differentiate oneself. It is not enough to appear to be different. One must be different. To compete strategically, the law firm’s brand image must be powerful, its culture engaging and its vision determined. In short, for a law firm to succeed to its fullest potential, the brand must be absolutely focused. Overall, a strong brand name acts as a barrier to entry and mitigates external threats.

To have a recognized brand name, a law firm’s brand should be easy to identify and remember, be distinctive from the competition, be catchy and appealing to the target market, and suggest something about the quality of the law firm’s service offerings.

4. A Convenient Location
For businesses whose customers come to them, the business must be conveniently located. Law firms are evaluated on the attractiveness of their location to persons coming to that destination. For a law firm to choose an effective site, a four step process is often used. First, an understanding of the market strategy and target market is established. The next three steps focus on the demographic and psychographic characteristics of the area and the compatible businesses within that area. Other determinants for the centre of choice revolve around the other activities, events, and outings the members can participate in. Therefore, the accessibility of a law firm to public transportation, major office complexes, busy arteries (highways and freeways), business and service retailers, and recreational areas is vital in attracting a client.

5. Well-Designed Physical Layout and High Quality Facilities
From the moment a client (actual or prospective) arrives at a law firm to the time they leave, that law firm should try to meet and anticipate their needs through the facilities that they use. A well-designed physical layout and high quality facilities establish a positive first and long lasting impression in the minds of the clients. The look and feel of the establishment and its facilities will help deliver on the promise of the complete client experience. These facilities include reception area, the offices, hallways, library, and bathrooms – in addition to the exterior facilities (e.g. signage, parking, elevator, etc.). The physical appearance of the law firm must at all times be maintained because doing so projects the law firm’s value proposition – i.e. of consistently offering high quality services in a professional and cost-effective manner. A law firm’s ability to deliver this value proposition is important in order to satisfy client needs and get repeat clients. Overall, clients expect to get value for their money and a well-maintained/high quality property is vital in delivering on that proposition.

6. Specialized Service Offerings
Specialization creates a desire for one law firm’s services to be preferred to that of competitor’s. Specialization is a viable strategy for earning above-average returns in the targeted law firm industry: it creates barriers to entry, yields higher margins with which to deal with supplier power, mitigates buyer power (since buyers lack comparable alternatives and are thereby less price sensitive), and insulates against competitive rivalry because brand loyalty results in lower sensitivity to price. In this context, service offerings should focus on particular target market needs, wants, desires, and expectations. Typically in the targeted law firm industry, competitors offer a broad range of service offerings in an attempt to capture all markets and thereby mitigate external risks and adapt to the changing environment. This strategy is not to be preferred over a specialized one, which can build a strong brand name and image, help focus the law firm (and lawyers’) time and energy, and allow the lawyers to offer expert and cost-effective strategies and solutions.

As noted above, competitor firms provide diverse service offerings (e.g. corporate/commercial, real estate, family, wills and estates, immigration, labour, litigation, etc.). While this strategy allows firms to adapt and accept many different types of clients (in both good and bad economic times), it is not as good a strategy as focusing.

written by admin \\ tags: administrative systems, brand name, business school, competent s, efficiency, financial management, key success factors, knowledge skills, law firm competition, law firm competitors, law firm industry marketing, law firms, lawyer, michael business management system, Michael Porter, porter analysis, quality facilities, reputation, service offerings, specialized service, staff system, strategic planning