Pricing psychology is powerful thing. While fixed-pricing it far better for the customer and the legal professional alike, it is critical that it be done right in order for it to work in your firm. Many of the barriers to success in a fixed price model are psychological. Below are some tips that will help you to do a self-analysis and determine if fixed pricing will work for you.
Did you know that billing by the hour was an accident? Hourly billing did not become a widespread practice in the US until the 1950's, before which counting time was a costing method. Since then it has been the bane of a lawyer's existence and has spurred numerous debates among clients who hate the uncertainty of hourly billing. Do you know what is good about it for the lawyer? Well, lawyers avoid having to justify the value of their services when they bill by the hour since they just state their rate and start billing when they work. You see, attorneys have a lot of pride and hate feeling like they have to justify their value. A fixed-price model holds the professional accountable to providing and communicating the value of their services. The good news is that, if you are comfortable communicating the value of services you provide, you will find that there are many more value-adds that you can provide to a customer than a typical firm can (because an hourly firm can never make more than the profit margin that is built into the hourly rate. . . . therefore there is no incentive to add more value). Before you switch, consider whether you are confident and comfortable communicating the value you are adding to the customer in advance of doing legal work.
Don't be a WET RAG! Some lawyers are like wet rags. Since legal services are personal services, a lawyer's ability to keep "busy" is directly related to self-confidence. If a customer starts complaining about your hourly rate or fixed-price, you most likely start to lower your rate or prices (can you feel it? . . . . the customer is squeezing you, the wet rag, . . and you are DRIPPING). Think about the last time you held a wet rag. What did you do with it? (Yes, you rang it out). When did you stop ringing it? (Yes, unless you have OCD you stopped when the rag stopped DRIPPING. Are we getting the point now? In a billable hour world, it is no wonder that professionals lower their rates because there is no logical relationship between time and value to the customer, but in a fixed price world, your price should reflect the value of the services. So, you have to be confident in your value proposition. You have to know that it is more important to have clients who value your services than to take them all just to be "busy" and have a false sense of being valued. An airplane does not feel "sad" because all of its seats are not filled, and the airline executives are not scrambling to lower prices just to fill the seats. If you are considering fixed-pricing, ask yourself if you have the confidence in your value proposition to not be a wet rag. Know your value. Stand firm. Be prepared to walk away.
You get what you pay for. When people go to lawyers it is because there is something very important at stake. People are not looking for a bargain basement brain surgeon. A study of pricing psychology in the consulting market showed that the clients of higher priced consultants were actually more successful. Why? No, not because there was any proof that the more expensive consultants were any better than the less expensive ones. (Note that a Jaguar is built on a Ford frame). It is because people take their advice more seriously when they pay so dearly for it and they were substantially more likely to take action on a consultant's advice. When they took action they were more successful. It is a self-fulfilling prophecy. You get what you pay for. You are what you charge. Be valuable and act like it.
These are just a few considerations for professionals considering fixed pricing. Our industry has not scratched the surface in exploring how much more value can be added in professional services firms. The first and most important barriers to success are psychological. If you can break down the barriers of the mind, a whole world of opportunities will open up.