Taken From: http://www.legalrss.uk/

← Back

Pricing Transparency: Time now to adjust your pricing?

Pricing Transparency: Time now to adjust your pricing? thoughts from Legal Mentors

 

Come 6th December providers of a range of legal services such as conveyancing, probate, motoring offences, employment tribunals and immigration have to publish on their website clear details of their pricing and the service clients can expect to receive, and provide clients and prospective clients with detailed cost estimates in writing.

 

Presumably, pricing transparency is intended ultimately to make the market for legal services more competitive but “the last thing firms should consider is a reduction in their pricing” suggests Mike Porter, a Director of specialist law firm advisers Legal Mentors.

 

Mystery shopping

For a recent presentation in Cheshire, Legal Mentors conducted a mystery shopping exercise by calling ten of the firms attending seeking a quote for some conveyancing work - the purchase of the same freehold property. Quotes ranged from £749 to £1,025 so the spread of pricing would suggest consumers do have to plenty of choice based on price. Not a single firm, however, provided any information about their service, leaving clients to make their choice based purely on price. It is an established fact, however, that consumers base their buying decision on a combination of factors – the value to them, convenience and the service they can expect to receive. Think Aldi vs. Waitrose.

 

Let’s start by looking at a few sums and assume your firm’s current performance as a business (you can insert your own numbers):

                                      

Revenue                      £4,000,000
Direct Costs                £2,000,000
Gross Profit                £2,000,000 (50%)
Overhead                    £1,700,000
Net Profit                        £300,000 (7.5%)

 

 

Firms now have a choice:

Cut prices (in the misguided fear that if they appear more expensive they will miss out on winning the new instruction)
Maintain current prices and hourly rates or
Increase prices (non-intuitive but read on…..)

 

Cut prices: Greater transparency of pricing may induce some firms to cut their prices to win more instructions but that can be a very slippery path to follow. The only outcome of cutting pricing is a huge hit to the firm’s bottom line - a price cut of just 10% in this case turn a profit into a loss:

 

Cut your prices by 10%

Revenue                      £3,600,000
Direct Costs                £2,000,000
Gross Profit                1,600,000 (44%)
Overhead                    £1,700,000
Net Loss                         £100,000

 

 

Alternatively, in order just to maintain the current bottom line you will need to generate virtually 12% more fee income than now just to maintain the same level of profit. A cut in pricing will mean, therefore, everyone having to work harder just to stand still. Hardly a sensible or welcome strategy.

 

Increase prices: Now may be the time to increase your pricing and improve your profitability. Many firms resist the idea of raising prices for fear of driving business away. But as I have said above, price is not the client’s only deciding factor, Clients need to understand exactly what they are buying so the move to transparency of service is actually long overdue, as long as firm’s emphasise the quality of their service, their experience and expertise to justify their price that may be higher than other providers.

 

Increase your prices by 10%

Revenue                      £4,400,000
Direct Costs                £2,000,000
Gross Profit                £2,400,000 (55%)
Overhead                    £1,700,000
Net Profit                       £700,000 (16%)

 

 

Surprisingly

Another way to look at your numbers: if your current profit margin is 30% (the approx. average for legal services) and you increase your fees across the firm by 10%, you can actually afford to lose 25% of your fee income and still generate the same amount of profit!

In effect, therefore, you would generate the same level of profit for 25% less work. Other percentages are available, for contact details see  www.legal-mentors.com.

 

Indeed, if you don’t lose any clients as a result of increasing your prices by 10%, the firm will make more profit from the same number of clients as before – 36% profit instead of 30%.  Increased profit without your team having to work more hours.

 

The ‘Quality’ message

To justify higher-than-average pricing, however, you need to really understand what the prospective client expects eg. their timing, how often they want progress updates etc. and integrate the issue of the quality of your service, help and advice into the conversation.

 

You need to help the prospective client to choose you by giving them clear messages about the service they can expect to receive and how, by charging a fair fee, you can help them.

 

Proper legal advice and good service cannot be provided on the cheap. Cheap legal help is often a false economy, leading to delays and potentially problems in the future.

 

Training

Whatever your firm decides to do about pricing and service transparency, the one thing that your firm has to do to succeed in this changing market is to improve sales skills. For too long the industry has neglected this critical area of their business. It is not about ‘hard selling’, but helping the client to ‘buy’ your firm’s services as against another provider.

Your staff need to understand i) the importance of converting more opportunities into additional new fee income at the right price and ii) how they can help the client to choose to instruct your firm. With appropriate training firms can help their staff to develop the necessary ‘soft skills’.

 

Transforming your firm’s profitability by winning more instructions with increased pricing really is possible.

 

If you want your firm to continue to be successful then Legal Mentors can help. Your

investment in training will produce a return both in the short-term and thereafter ongoing many multiples the cost, ad infinitum.

 

 

 

 

 

 



 
Contact us for more information

← Back

Contact Us

http://www.words4business.com/contact.php

MyInfoNet™

Division of:

Best Practice Online Ltd
9 Howell Rd
Exeter
Devon
UK
EX44LG

+44 (0)1392 423607