A Practice Alchemy member is in the process of shifting his pricing from discount to premium pricing. He recently asked about the best way to get the new business model going and shift current clients from the old to the new. Great question.
Every lawyer should premium price. Every lawyer can premium price. Competing based on price is a fool’s game ... and a recipe for keeping your practice unprofitable, unfulfilling, and stressful.
Premium pricing gets you better clients, more profits, and allows you the breathing room to do the right things to represent them. I’ll write on that another time – but there are only two reasons you can’t premium price.
The first is if you’re in one of the few practice areas where a government entity has a say over your fees, and the second is that you don’t believe you can.
It’s that simple.
Making the Switch
First of all, you don’t have to go cold turkey and start a new pricing model tomorrow. You can slide into it. Actually, you usually have to slide into it because you have ongoing matters that require you to make it a gradual shift.
However, you've got to pick a date for the transition to be complete. After a certain date, you will no longer accept any new matters on the old structure. Hard stop. If you don’t hold yourself to this, you’ll forever be making exceptions and excuses. Get out your calendar, pick a date, and don’t wuss out.
A Difficult Conversation May Be a Necessary Evil
It’s easy to just let it go instead of having a potentially awkward conversation with a client you’ve represented before. But if you don’t have that conversation, you won’t be able to make the change. You’ll be forced to essentially maintain two businesses in one – the old, crummy, low margin business and your new and improved high-margin business.
Trust me, I’ve had many of these conversations. And, for what it’s worth, even harder ones - when switching from middle of the pack billable hours to offering strictly flat fees (at a seriously premium rate, much higher than the billable hour number).
As difficult as these conversations were, they were also some of the most profitable conversations we ever had. They clarified that we would only be servicing clients in a certain way - our way - and adhering to a specific business model. The clients who were the best fit continued with us. Those who just couldn’t understand or refused to accept the switch – typically, the problem clients – were left behind.
We were finally in charge of our own destiny, not competing for low-end clients. On the road to a real business.
Having these conversations made it really clear who would be partners in growing our business – and on whom we’d lavish amazing service, and who was in it to squeeze my kids’ college funds and jump ship the second someone else offered a better rate.
Why Change Doesn’t Have to Be Scary
Many lawyers fear that they’ll wake up tomorrow morning with no clients because they all refused to accept changes in their fee model, pricing, positioning, whatever. These lawyers are underestimating their relationships with their clients, as well as their clients’ capacity to comprehend the benefits
Instead of asking clients if they would be willing to try something new, come from a position of strength. Tell them the change allows you to provide the highest level of service, and to make sure you always have the capacity and the skills to serve the client. Let them know that the change is happening, and if they want to make their choice of attorney based on price, maybe you aren’t the lawyer for them.
Or, do something out of the box. Our rates were anything but cheap - but we included a line on our invoice that if the client didn’t feel what we charged was fair, they could just tell us and pay us whatever they thought was fair.
Sound crazy? Yeah, like a fox. By premium pricing we chased off anyone who would have disputed an invoice before they even became a client. And never had a single client adjust the invoice. None. With millions of dollars in invoices sent out with that guarantee.
By using price to chase off the worst clients, we could offer a guarantee that no competitor could. A guarantee that cost nothing, but was worth its weight in gold for the marketing value.
Raising Rates – Go Fast, Go High
Most lawyers say to themselves, “I’m charging $250 per hour this year, so I’ll charge $260 next year and $270 the year after that.” This is unneccessary, limiting, incramentalist thinking. Most lawyers take as a gospel that they can only raise rates a little per year. Wrong.
Do you really think this will get you where you want to go? If the practice you want, and the profits you want, mean you need to charge $500/hour, and you’re at $250, guess what. It’s going to take you 25 years to get there raising rates only $10 a year.
Good luck, pal.
Here’s the real deal. There is absolutely no reason why you can’t go from $250 per hour this year to $500 per hour next year. Yes, I did say that. Tomorrow’s client doesn’t know what yesterday’s client paid. And if tomorrow you correctly re-position yourself as a premium practice, the fact is you can do it.
The only thing stopping you is a voice in your head that says, “But everyone else only increases a little ever year.” Tell that voice to shut it. If you position your practice properly, you can double your rate next year.
Make the change. Pick a transition date and show some backbone. Then watch as your practice takes off with the right clients, paying you what you’re worth.
Note to Practice Alchemy members: For the blueprint on positioning your practice properly for premium pricing, see the training on Your Unique Practice Positioning.