Value Billing Q&A
Not long ago, I engaged in an email exchange with a reader about Value Pricing. Here’s part of the conversation:
Q: I’m still trying to figure out how value billing can be used to serve the client’s best interests, as well as the lawyer’s interests. How to set the fee is still a puzzle to me — especially how the client’s situation and “valuation” impacts the fee, and the relationship to the amount of effort the lawyer expects to expend on the case or transaction.
How can I figure out when and why a “premium” fee is warranted, or one client’s situation would result in a higher fee than another’s, although the lawyer believes he or she would be performing the same services for each client? Any help you can give me would be much appreciated.
ACS response: There’s no scientific method that can tell you how to set a fee when you’re using value billing, any more than there is a scientific method for determining your fee when you’re billing hourly. The lawyer’s time, effort and resources that go into the transaction are all costs that need to be taken into account by the lawyer when setting the fee – they’re just not the ONLY things that need to be taken into account, and the fee shouldn’t be entirely based on those factors.
I don’t believe that most lawyers provide ‘the same services’ to each client, regardless of how similar the clients’ situations appear to be at first blush. Much of this is based upon the client’s expectations, both in terms of the outcome and in terms of the services that are provided and HOW those services are provided.
There are many factors that might affect whether a ‘premium’ fee can be charged – and you can see many of those factors at work in other businesses. For example:
* Does the client want something in a rush?
* Does the client expect ‘additional’ services?
* Is this a needy client?
* Will you be dealing with one person within the organization or more than one?
* Will working for this client mean that you have to forego other business or put other clients off in order to get the business?
Q: Some of what I’ve seen written about value pricing worries me. For example, some proponents of value pricing seem to say that you should learn about your client’s anxieties in order to charge more. At this point in my reading, it seems that value billing practitioners would encourage a lawyer to charge otherwise totally similar clients (for whom you expect to perform the same work under the same conditions) different fees, based on the client’s personal characteristics — e.g., if one of them had a higher anxiety level, or maybe more anger at the opponents, or was fighting to prove a point — because that client might “value” your services more highly and thus be willing to pay more. That attitude might be fine if you make computers or widgets, but it sounds like you’re saying that lawyers may price discriminate among clients based on information learned within the lawyer-client-fiduciary relationship. That makes me feel queasy. Can you somehow reassure me on this point? Thanks again for your willingness to help.
ACS response: Again, there isn’t a science to setting the fee, any more than there is a science to deciding whether to charge $200 vs. $250 vs. $400/hour. That being said, I do not believe that value billing practitioners are talking about learning your client’s anxieties in order to charge more –they’re talking about learning about your client’s anxieties in order to better able to discuss value. Those are two very different things.
Similarly, the issue isn’t really charging a client more solely because of their personal characteristics. Instead, in the lawyer’s experience, those characteristics inform how the engagement will be managed, what the client expects and what services will be provided.
A client who is more anxious, wants to ‘prove a point,’ or has more anger at the opponents may be more likely to do any of the following:
* Use more of the lawyer’s resources – particularly time;
* Be less likely to listen to the lawyer’s advice;
* Make the engagement more contentious or more difficult in other ways;
* Have unrealistic expectations;
* Make more work for the lawyer;
* Cause more problems for the lawyer or the lawyer’s staff;
* Be more demanding;
* Want work done ‘right away’; etc.
All of these factors can, and should affect the fee. If the lawyer were billing by the hour, no one would bat an eye if one of the clients described above ended up with a larger legal fee – as usually would be the case. At least if you’re value billing, the client is aware of the fee up front and has an opportunity to reject it at the outset if the client doesn’t believe the services are worth the quoted fee.
The client’s anxiety about the problem (or opportunity) they are faced with – and how that anxiety affects how they value the services that are being provided – should be explored with every client regardless of how you price your services. Whether you’re ‘value billing’ or not, the client still has to see the value in what you’re providing, and has to agree that the value is at least equal to the fee being quoted. The client’s expectations and anxieties will play a large role in the engagement, how it is managed, and the type and scope of services to be provided.
Although your email suggests otherwise, so-called ‘difficult’ clients are often quoted a different fee even by lawyers who are billing hourly. Many lawyers quote a higher hourly rate for clients they believe to be ‘difficult.’ Many lawyers have different rates for different kinds of clients, even if the kinds of services they are providing are the ‘same.’
Finally, lawyers are ethically required to charge a reasonable fee for their services, whether they’re pricing based on value, an hourly rate or any other pricing method. The principles of value billing don’t require a lawyer to determine the fee in a specific way, or to set a different price for every specific client. In its most basic form, value billing simply means that the fee has to be tied to the client’s needs and values, rather than the number of hours involved.