Growing up in Biglaw, I always thought pricing services for clients was easy. Conversations with clients went as follows: “Our rates range from X to Y, and are very competitive with our peer firms. If you have the audacity to ask for a break on these prices, we can offer you a 10% ‘courtesy discount,’ but will include language in our engagement letter allowing us to recoup that discount and more a few months into the engagement.” Of course, even in the mid-2000s (crazy that those days are nearly a decade ago), X was roughly the monthly lease payment on a well-equipped Honda Accord — for the least “experienced” lawyer in the entire firm — and Y was in the range approaching the monthly mortgage payment for a decent-sized colonial in a “pleasant” suburb. That was how things were priced, and depending on your firm, your rates were either considered cheap or expensive. But that categorization was always relative to other firms in your city, with a usually self-selected “peer group.” So there was always a “premium” (but unnecessary) firm more expensive, and on the other end of the pricing spectrum, a “discount shop” that could be sneered at for trying to undercut the market with low prices aimed at masking subpar legal ability.
When there was a surplus of demand for Biglaw’s services, the above approach was a tenable one. Once that surplus turned into a surfeit, firms needed to get a little more creative. At first, the tendency was to simply offer bigger discounts, with the “courtesy 10% off” turning into 25% off or more. Then clients started informing their firms of new “billing guidelines” where certain types of work would no longer be billable. Or where certain lawyers, such as junior associates whose time would no longer be paid for by clients, were magically transformed from revenue-producers for the firms that hired them to deadweight cost center investments in the “firm’s future.” Add in competition from other firms for a shrinking pie of business, and thinking about pricing became more rigorous. In fact, pricing expertise is one of the only Biglaw job skills with a growing rather than shrinking potential employment base….
When I was a partner at Biglaw, who by necessity and temperament tried to originate as much of his own business as possible, pricing my services was a challenge. It did not help matters that I made partner in 2009, right at the height of the perceived (where a few good firms failed with devastating and undeserved consequences for many fine people, but the vast majority of firms continued along just fine) Biglaw collapse. Or that while I was more than willing to significantly discount my own time to bring in “good matters,” I was working within systems where there was a limit to how creative a junior partner could be in pricing work. And it is one thing to discount your own time, but to sell other people’s time at a discount is a completely different matter. Sure, there are lawyers, particularly at eat-what-you-kill firms, who raise the valid argument that the single hardest thing to do is originate work, and as a result, the person who can do so should be given free rein to sell his colleagues’ time at whatever price the market will bear — no matter how low that market price is relative to the firm’s overhead expenses or published rates. While the argument may be a valid one, in practice such behavior is often damaging, both to the firm and especially the lawyers who are forced to do the actual work at those heavily-discounted rates.
It has not gotten any easier at our new firm. The most agonized-over part of any proposal my partners and I prepare for potential clients is the pricing. We know for a fact that we can be profitable, and offer the same quality of service as we did for our clients while we were in Biglaw, even at 50% off our old hourly rates. At the same time, we really don’t like the idea of billing clients solely for the amount of time we spend doing something, and to date have managed to use flat fees for every single one of our engagements. Figuring out those flat fees, however, can be a challenge. The good thing about the process is that it can force a client to consider what the real value of the service is to them. But for many clients, that is not the way they are used to thinking about things, so they default to thinking in terms of hourly rates. Or of flat fees as ways of capping hourly rates, disassociated from the real value of the engagement to their enterprise. We have a lot of ideas about implementing things like “demand pricing,” hybrid cost-structures, and other alternatives, but clients often want to keep it simple. Which is actually code for familiar. For better or worse, clients are familiar with the billable hour.
Getting pricing right is becoming more important than ever, for firms big and small, and companies of all sizes. The easy “solution,” and a sometimes tempting one, is to broadcast to the world that our firm can do for $350-500/hour what our clients used to pay us $550-700/hour and up to do just six months ago. But such an approach is too simplistic, and quite frankly does not even make us more attractive to existing and potential clients. The harder (and more rewarding) path is the one that we are trudging along on: we take the time to engage in a real dialogue with our existing and potential clients, trying to determine what value our services offer to them, and we try to convince them that our firm can provide those services at an exceedingly competitive price point.
Sure it is hard, where competitive visibility into pricing can be difficult even for partners in the same Biglaw firm, much less amongst the entire universe of Biglaw firms and boutiques that offer patent litigation services. But it’s a worthwhile challenge, and from our perspective, the price that gets us hired is always the right price. Our job is to make our clients feel like they got a bargain, no matter what that right price actually is. When we do that, the price becomes right for everyone.
Please feel free to send comments or questions to me at firstname.lastname@example.org. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique. The firm’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. He can be reached at email@example.com.