What is legal pricing and why are firms making increasing use of it?

Andrés Vanegas: “It is essential that the leaders of our organizations are promoters of an honest commercial mindset that is open to listening to the voice of the customer”

Some law firms do not work in the same way as others with respect to pricing strategy or legal pricing. Some cases are well known, including a prestigious lawyer who interviews his clients as a form of client feedback and, depending on their satisfaction, bills their fees; or the case of a small consulting firm, in which the client was so satisfied with the work done that he finally paid double what was initially agreed. Also, according to legend, there is a very prestigious and profitable New York consulting firm that does not make fee proposals at the beginning, but sends the invoice at the end based on the development of the work, the satisfaction perceived by the client and the impact on the client’s business.

Andrés Vanegas, partner at Gericó Associates, writes about this issue for Expansión and explains that these cases are not the rule, but neither are they the exception. “The most interesting thing is that they tell us about a vision of pricing that depends more on the customer’s perception of value than on the traditional methodology based on pricing from a calculation of estimated costs,” he adds.

Legal pricing approaches

Three main approaches to legal pricing can be highlighted:

• This is based on an accounting approach, in which the time is estimated in hours per category of professional required for a service, plus any additional costs necessary for execution. According to Vanegas, “the logic is to cover the costs of the resources involved in the project, always ensuring a margin that we consider fair for the work offered”.
• The one based on a market approach. “Just as the cost-based approach focuses on the floor, the market-based approach establishes a ceiling marked by the competition’s offer,” he adds.
• The approach based on the value perceived by the customer. Vanegas explains that “this is an approach framed in an era in which the consumer, who is very well informed, has more and more options and is looking for very different solutions. This approach gives a price value related to the value added to the client’s business”. He also adds that there is a higher risk than in the other options, since profitability can be more easily left exclusively to the fate of third parties’ criteria.

It is important to keep in mind that the approaches are not mutually exclusive: “Success is in the balance, in the criteria and in the pricing processes within our organization,” he explains.

Our expert recommends having a person in charge of Marketing for the internal pricing committee, since it is not only a reflection of sales, legal operations or the financial area. This pricing strategy is related to the ability of our brand to convey attributes, values and differentials that allow us to justify the rates.

As advice, Vanegas recommends “avoid falling into the trap of cheapening our services for the sake of it, unless it is a low-cost business model strategy. In this case, the race for low prices erases the differentiating elements of our brand which, in the end, are what add value for our clients and justify a pricing scheme that, in turn, allows our business model to be profitable”.

With this article, he invites us to structure internal mechanisms – pricing committees, formal processes in the preparation of proposals, information management, training – and to finely segment our markets. “Above all, it is essential that the leaders of our organizations promote an honest commercial mindset that is open to listening to the voice of the customer,” he concludes.

If you want to read the full article in Expansión, click here.