THIS ARTICLE assumes that the reader is a lawyer. Not only that, the lawyer is in private practice and has hanged his/her shingle so to speak or has finally came to the realization that hourly billing sucks!
That last part is what got me reminded to write this article. You see, last year, I was attending the Startup Management Bootcamp by the Asian Development Bank (AIM) when the professor asked me regarding my pricing for my law practice.
I answered that I had long abandoned the hourly billing a good 6-7 years ago when I realized how it sucked and looked for an alternative. That led me to value-based pricing and let me just say that I have never looked back. My clients are happy. I am happy.
To go back to the topic, and since we are both lawyers, let’s start with definition of terms. This will place us in the same language and hopefully in the same framework.
What is value-based pricing?
Value-based pricing (or value pricing) refers to a pricing approach (some like calling it a philosophy) wherein the professional and the client agree on the value of the engagement and as a result on the price.
I know, I know. The definition seems abstract and it does not give you a quick takeaway that you can readily implement. That’s because, the definition works within the context of understanding the history of pricing professional services to the evolution of the predominant model of hour-based billing.
A quick history
If you have been noticing it, I’ve been using the term phrase pricing for professional services, and not pricing for lawyers. It is due to the fact that the problem of the hourly billing is not confined nor limited to the legal profession. In fact, several professional services follow this outdated form of billing, from accountants, management consultants, and what-have-you.