Happy New Year! By now, you’ve considered resolutions. You may have been brave enough to write them down. You may even have broken a few already. Whatever personal goals you might have in the new year, this article will help you enhance your professional development as a business advisor by focusing on Pricing tactics.
Why Pricing? First, it is the final step in the sales process. Second, for all the hard work Business Development professionals invest in the sales funnel, no engagement letter is signed without an agreement on the price. Third, Pricing has been a hot topic, but the focus has been on determining price tags (i.e., Finance Dept.) rather than on winning the price (i.e., Business Development). So, how can Business Development professionals play a role when it comes to Pricing? Below are ten tips that will help you be a better advisor to your attorneys.
10. Discount Wisely.
You have heard this before, but it bears repeating: first, never discount; second, if you do, do not let your attorney fall into increments of five (e.g., 5%, 10%). The higher the discount, the lower the profit. You can help minimize the discount by helping focus the discussion on all the integers: for example, 3% is better than 5%, 7% is better than 10%. Also, the more granular the discount (e.g., 6.71%), the more buyers perceive thoughtfulness and honesty, greatly reducing a buyer’s desire to challenge the price.
9. Make a Trade.
Even the wisest of discounts is still a financial loss. The better tactic is to offer a discount only with a trade: if a buyer wants to get something (aka a discount), then you must get something in return. For the trade to be successful, an attorney must be forearmed with options. You can help assemble a menu of options to share with your attorney, such as a (higher) retainer, an automatic rate increase, or a shorter payment cycle. This is a great place to think outside the box.
8. Build Fences.
Law firms get into (financial) trouble when they do not properly communicate the amount of service for the proposed price. Before an engagement letter is even drafted, you should ensure your attorney has an accurate understanding of the requested/needed services (aka scope) which will ensure an accurate price. This business conversation should include staffing, availability, resources, timing, outcomes. It helps to keep in mind the adage: measure twice, cut once.
7. Offer Options.
Put simply: buyers need options. Studies show buyers have an aversion to a single option. That is one reason GCs consider several firms. When advising attorneys on pitches and proposals, you should help attorneys understand the need for your firm to offer at least two options; three is ideal (see next tip). For example, a firm can offer full rates and discount rates, or hourly rates and an AFA. As a bonus: if you do provide options, buyers are less likely to need a competitor’s offer.
6. Offer More Options.
The best tactic for options is the familiar framework, Good-Better-Best. It’s all around us: S-M-L meals, GM’s Chevy-Buick-Cadillac, ring’s Basic-Plus-Pro. You should work with your attorneys to understand the firm’s services and work toward developing three buckets of offerings. As a bonus: if your firm can create three versions of its services, it will minimize—if not solve—the issues in Tips 7-10.
5. Prepare to Negotiate.
Does your law firm put equal resources into holding its price as it does into determining its price? Sadly, no. Therefore, it falls to the Business Development professionals to prepare attorneys to negotiate the price. For starters, negotiation is both science and art. Scientifically, you must collaborate with the Finance team to understand how the firm sets its billable rates and creates any non-hourly fee arrangements. Artistically, you should work with attorneys on the basic strategy and tactics of negotiations. These internal efforts will prepare you for price negotiations (see next tip).
4. Negotiate Wisely.
Price negotiation in a nutshell: sellers want to sell at the highest price; buyers want to buy at the lowest price. In your preparation (#5), you have learned how low your firm can go*. The secret to success is knowing how high your buyer will go; this is known as Willingness-to-Pay (WTP). WTP helps you maximize your sale price—if you make the time to understand your buyer and her/his motivation—by challenging what the buyer wants to pay. (* Partners often reduce price to win work; knowing the "floor" helps preserve profitability.)
3. Avoid Being a Commodity.
The most dangerous label to have in a price negotiation is “commodity.” You lose all price control, and the buyer dictates your price. This happens when firms fail to connect their Pricing to their Business Development to their Marketing. You can help correct this many ways: some firms appear visually distinct; some firms emphasize individual talent; some firms highlight high-caliber client list; some firms tout public recognitions. As a bonus: firms that can rise above “commodity” enjoy less collections issues.
2. Be Different.
The best way to avoid negotiations (#4) or being a commodity (#3) is to be different. If water can be differentiated, your law firm can be. In fact, every day, your clients believe you are different: they choose to send work to your firm, not to your competitors. So, you should ask your clients why your firm is different. Then, discuss internally if you can add a difference, such as a new technology or new resource (e.g., LPM team). Once you understand your differences, work with your Marketing colleagues to create strong, differentiated messages across all marcom channels: it will help you improve your Pricing.
1. Articulate Your Value.
The single, most important tip to embrace in the new year: focus on value. Specifically, you need to focus on three areas: the attorney’s value, the firm’s value, and the buyer’s values. The internal values will help you create Value Propositions; the buyer’s values will help you understand motivation. When you can match Value Propositions with motivation, the price always goes up.
By now, you understand there is much more to Pricing than numbers (i.e., determining price tags). Business Development professionals play a vital role in the success of a law firm’s Pricing (and Profitability) efforts. By embracing these Ten Pricing Tips, you can help your attorneys originate more profitable clients. Good luck with your professional (and personal) development in the new year!
Patrick Johansen CPP is the Business Development Director at Lerner David IP, New Jersey’s largest intellectual property law firm. He can be reached at firstname.lastname@example.org.