We’ve all heard the joke. Lawyers are bad at math. Otherwise we all would have gotten MBAs or something like that (or, if we could stand the sight of blood, we would have gone to med school). But let’s stick with the math issue for a moment. Because we think some simple math could help lawyers unlock another issue they’ve been facing – how to price their services in a way that clients think is reasonable and consistent.
Understandably, pricing brings to mind things like the death of the billable hour (which seems to be progressing about as quickly as molasses running uphill on a cold day), fixed fees, and that horrible c-word “commoditization.” All of these things make great discussion fodder at conferences and lawyer cocktail parties, but when it comes time to making plans to get things done, often elicit reactions ranging from confusion to frustration. Indeed, this consternation around how to “fix” the billable hour problem has led many lawyers to simply throw up their hands and continue on practicing and billing as they’ve done for the past 200 years. Now isn’t that a recipe for success? We think not.
So we’d like to suggest a very simple means by which law firms can think about how to price certain services that they 1) do a lot of, and 2) aren’t completely reinvented every time. Think real estate closings, company formations, simple transactions, etc. Perhaps a formula such as this might help us all get a handle on how these services might work in a fixed fee context.
First, gather together the bills for the last 50 or so transactions of that type that were done (if you don’t have 50 of them, perhaps that’s a sign that requirement #1 – you do a lot of this work, doesn’t fit, and it’s best to look for another transaction type).
Second, chart out the bills for each of these, including what the original bill was for, and whether any time for that transaction was written off.
Third, pretend you’re a judge in an Olympic diving competition and throw out the errant scores – the ones that are very high and very low.
What you’re left with is a range of bills for that transaction type. Invariably some will be lower and some will be higher, but what you have is a range. And this is a great step. Inevitably, if you pick a point right in the middle of the range (the median, if you will), and price all services of this type at that amount going forward, you will make extra money on some and be over budget on others.
But what will you get in return? Happy applause (ok maybe not applause) from your clients and the legal marketplace, because, in the first case, you will have provided some certainty around your services and shown that you care about the fact that your client wants this, and in the second case, you look pretty cool for having tackled (at least in a small way) an issue that’s been making lawyers crazy for years.
So go forth, do some digging in your billing software, do some simple math, and make your clients happy!