November 26, 2007
Exceptionally Good Article on Law Firm Pricing
I stumbled across an excellent article by Ward Bower of Altman Weil, Inc. The article, “Pricing Legal Services”, appeared in the January 2006 issue of Law Practice Today, but you can also find the original 2004 version on Altman Weil’s web site under the same title, Pricing Legal Services.
Bower provides an analytical approach for evaluating your current pricing in light of your income objectives. Bower even quantifies some of the influences on a firm’s ability to set price relative to other law firms. For example, to illustrate the relative power of various attributes on a firm’s pricing ability, Altman Weil computed the percent of spread between median rates of the highest and lowest group for each of the categories below.
The spread is almost 100 percent for Specialty. All other things being equal, the rate for a specialist can still be twice as much or more than that of an attorney without a specialty. Here are the spreads as reported by Bower:
Specialty 96%
Experience 76%
Firm Size 58%
Position (partner, associate 47%
Community Population 40%
Geographic Region 40%
While Bower’s article includes a formula approach for calculating the minimum rate necessary for the firm to achieve it objectives, Bower points out that this is only the start of the evaluation process. The remaining step is a big one. “The remaining step is to position lawyer hourly rates in the external marketplace.”
The formula gives you an economic test of your prices, but the final price must be determined in light of the firm's position in its market, the strategic aims of the firm, client price sensitivity, and the competitive strategy for the firm.
Most midrange firms are underpriced, especially compared to Big Law and large regional firms. They are underpriced simply because they initially set prices too low and have never caught up. There is ample room to achieve higher effective rates without loss of the competitive price advantage enjoyed by midrange law firms.
For more on price management, see the prior posts Pricing's Role in the Law Practice Business Model and Price Management for the Law Firm
Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:
877/377-3740, e-mail info@juris.com or go to www.Juris.com.
Related posts
Filed under Pricing by Tom Collins
Leave a Comment