Seven questions to answer before quoting fees

Investing in pricing knowledge and asking pertinent questions before quoting for legal work can pay off in spades for savvy lawyers, writes Warren Riddell.

This column is about the seven sets of questions every solicitor should answer before they estimate, let alone quote, a price (i.e. fee) for a client. Most solicitors rightly regard themselves as experts at costing: counting time units and multiplying by hourly rates. But far too few solicitors understand that costing is not pricing. Pricing is becoming a skill in client companies, so it is high time for solicitors to invest in pricing knowledge and skill by being able to answer these seven questions.

1. What is your client’s need and budget?
Have you thought about your client’s need in economic, rather than technical professional, terms? Has your client thought about a budget for this job? What has your client historically allocated for this type of work? If you have not probed the economic value to your client and asked about their budget, then you cannot possibly manage their expectations of a fair fee for the work that is involved.

Naive clients can be just as tricky to manage as experienced ones. All clients use what is called a frame of reference when considering a fee proposal. Clients with little or no experience of a solicitor’s services will use a frame of reference related to other professional services or to what they have from business associates and friends. This frame may lead them to regard any proposal you make as expensive. Remember the old stereotype: “All solicitors are expensive – and slow.”

On the other hand, an experienced client may go into the negotiation with you intending to beat your price down. This is particularly true if their frame of reference is “I have been ripped off before”. You need to ask questions and get inside your client’s head to manage their expectations and secure their understanding of your fee structure and level.

2. What resources are required?
What resources of your firm will be needed to complete this matter? What level of seniority will be required? Do you have the precedents necessary for the matter? Is it routine or will extra effort be needed in the face of novelty to achieve a professional outcome? How busy will your lawyers be when the matter needs to start? Does the client expect you to be personally involved in the matter? Do you really need to be (if so, at what points)? Will this matter incur an opportunity cost for your firm? Finally, how informed are you about your rates?

Unless you know the answers, you cannot accurately estimate the cost to your firm. Just saying, “Yes, we’d be pleased to help you” is not good enough.

3. Are you prepared for scope variation?
How difficult will this matter be to manage? Do you expect it to be a relatively simple task, or is it going to be more complex? Complexity and novelty in a matter call for extra care in managing your client’s expectations. Are you confident about the places scope creep may occur? And how you will anticipate these, inform your client and ensure a revision of the estimate before it is too late?

4. How time-sensitive is the work?
Is your client one of those that leaves things late? Or does your client phone on a Friday expecting advice on Monday? Is it really urgent, like a medical emergency, or simply a function of your client’s personality?

Rushed work not only disrupts your workflow, but requires extra vigilance in quality assurance (to say nothing of the impact of late nights and weekends on you and your staff. Are you able to explain to clients that jumping the queue means paying more?

5. Will the matter be profitable for you?
How profitable is this matter or client going to be for you? How willing are you to say ‘no’ to work you know generates revenue, but not profit? Does being busy and profitless make sense to you? Regarding clients as ‘strategically important’ only makes sense if their long-term value to your firm is proven and certain.

6. How unique is your offering?
Is your firm uniquely qualified to perform this particular work, or could it just as easily be done by another firm? The more specialised you are, the fewer competitors you will have. A useful measure of specialisation is from how far and wide your clients come?

If you work in regional Victoria and have a client base in Queensland, it indicates they value you over all the solicitors in between. Whereas if most of your clients are from the neighbourhood, chances are you are not much different to other firms in the neighbourhood. The more your clients regard your offering as unique, the greater the degree of price-setting discretion you have. In other words, a specialist is a price-maker; a generalist is a price-taker.

7. Have you tuned your final price?
To more finely tune the price you estimate or quote, you should be able to answer these questions:
• At what price would this matter be too expensive for the client to consider using you?
• At what price would the matter be considered expensive, but the client would still consider using you?
• At what price would the matter be seen as inexpensive that the client would question the quality of your work?
• What factors would justify asking a premium price?
• Above all, how convincingly have you communicated the value you are offering to your client? Does your client recognise you are treating their money as though it is your own?

Remember:
(1) Profit = Revenue (hours x rate, if charging time) – cost.
(2) Cost is but one of three considerations in setting your price; the other two are value to the client and what price your competitors will ask.
(3) You have the ability to influence your clients’ expectations of price and perceptions of value. But you have to work at it.

Warren Riddell is a director of Beaton Capital and Beaton Research + Consulting, corporate advisory firms which provide strategic and financial advice to clients.

www.beatoncapital.com
www.beatonglobal.com