Pricing has the greatest effect on your firms profit. Nothing else comes close-except perhaps having the right client selection.
Reducing your fixed or variable expenses, increasing your turnover-all which might be good- will still not effect your profit as much as your pricing does. Yet in all my years of legal practice I cannot remember the word “price” being used at all, instead we chose to cling to quaint 19th century terms like “costs” and 20th century terms like “rates”. “Rates” are not prices.
I strongly advocate that the professions should agree our fees up front with our clients, before we undertake any work. This is how the vast majority of the rest of the business world price their services. This is how you personally purchase nearly everything. Why should we expect our clients to buy something they do not, and we do not, know the price of upfront? I also believe that there is no place in a professional firm for recording time. Recording time-especially in 6 minute units- serves no valid purpose whatsoever in any professional firm. Time based billing is but a symptom of the time recording ‘illness’ that many in the professions have become addicted to, and it is time recording per se that is the real cancer in the professions.
Considered Australia’s foremost thought leader and proponent of Value Based Pricing, John has closely followed and worked for several years with one the world’s leading professional firm pricing experts Ron Baker, founder of the Verasage Institute an international think tank for professional firms. In January 2011, John was appointed a Senior Fellow of the Verasage Institute.
Although most professional firms are still dependent on time based billing and timesheets to price their services, this is far from the most optimum pricing model primarily because clients do not buy time – they never have and never will. Clients buy our intellectual capital-our knowledge, outcomes & results- the value of which cannot be measured by time.
We work with professional firms to assist them in moving away from time based billing, in understanding the value they provide to their clients, communicating that value to their clients and then pricing that value with confidence.
If you agree that pricing has the greatest effect on your profitability why not make pricing a core competency in your firm?