For those not in the know, the “Marketing Mix” is also known as the 4 Ps of Marketing, which are: Product, Price, Place (distribution) and Promotion. There is chatter about a 5th P – Participation, but that’s not what this post is about.
We’re going to talk a little bit about Price today.
Price is what you charge for your services. In the legal industry, this is more commonly known as the “billable hour” and is charged to the client in 6/10ths of an hour increments.
Price is also reflective of the VALUE of your services. What can you get people to pay you to do X?
I don’t know if you’ve read the paper recently, but U.S. unemployment rates have hit 10.2%, the highest in 26 years, with the legal sector losing 5800 jobs in October alone. More banks have been taken over by the government, nine on October 30th alone, bringing the total to 115 (and growing). California has raised the withholding tax on personal incomes, raised sales taxes, and while property values went down in the state, everyone’s property taxes seemed to go up this year. And, law firm layoffs and deferrals continue.
In fact, according to The National Law Journal (subscription required), it hasn’t been pretty for the nation’s top 250 firms:
This year, headcount dived by nearly 4% — or, as Associate Editor Leigh Jones notes in her overview on this year’s results, enough to fill a couple of huge law firms.
Actually, the numbers are even more stark. For 20 years, the average annual growth rate for the NLJ 250 has been close to 4%. So this year’s decline, when coupled with the usual growth rate, is more like 8%. In rough terms, that’s 10,000 lawyers.
All year, we’ve heard how different in scope this recession has been. And this year’s NLJ 250 shows exactly how tough the legal business has become.
So let’s bring this post around to the point: PRICING.
I was trained on the adage of: If a client comes to your firm on price, they will leave your firm on price.
As a free-market capitalist, I never really got that one. Shouldn’t the market drive the value of, and the pricing of, the rates? In reality, are rates not arbitrarily decided upon by a committee in some firm’s main office? How else do you account for rates automatically rising x% year after year? My favorite is how in some big firms, partners of equal experience charge different rates, and associates are paid differently, based on their location (New York v. Houston, for instance).
With all of this swirling around in my head, I became so perplexed by the following advice I read on What About Clients:
Don’t lower rates to get business. Don’t change anything. If a new client–especially via an in-house lawyer (but we doubt you’ll see this happen)–demands a “discount” these days, it is likely both unsophisticated and a pain in the ass. Refer it to that firm down the street you just never liked.
Ouch. Makes me wonder: what about the client?? Many corporate legal departments are being hit hard, because their companies are being hit hard. Legal departments, similar to the marketing department, are seen as cost centers whose budgets are always on the line. Corporate legal departments are laying off staff, dealing with cutbacks, lower corporate profits. General counsel jobs are on the line, and their budgets are being cut.
So, what about the client? In a down economy, when budgets are cut, when law firms don’t have enough work to cover the costs of doing business, and are laying off staff, why is idea of lowering rates automatically off the table? Should the advice not be: Don’t say “no” to reducing your rates too fast?
I’m not saying lose money on any work that you are doing. If it costs you $250,000 to get the job done, don’t charge $150,000. But, if it costs you $150,000 to get the job done, don’t charge $250,000 either.
Clients, like law firms, are not cash cows. The economy has changed. The Product of legal services has changed. The value of legal services has been readjusted. And, in many cases, so too must the Pricing.