How to price mediocrity

I know this lawyer. Let’s call him “Bob,” because, quite frankly, palindromes are fun (and “Stunt Nuts” doesn’t work as well). He’s not the best lawyer in the world; he’s not the worst. In fact, he’s far from either extreme. He’s right there in the middle.

He’s mediocre. When it comes to mediocrity, he’s the best. I’m not being judgmental here; he’s fine. As in when you go to a restaurant and your steak is overdone and your fries are underdone but you don’t want to sound high maintenance so when the waitress asks how your meal was, you say, “Fine.” That kind of fine.

Now because the work that Bob does is mediocre, the very best way for him to price it is by billing his time on an hourly basis.

You see, there is nothing fundamentally wrong with doing mediocre work. It’s incredibly common. In any profession or industry, if you were to draw a bell curve to show the normal distribution of quality, you would see that most performers end up in the middle. Only a few would be truly poor performers, and only a few excel.

And not every customer needs excellent performance. Sometimes, people just want to get the job done adequately, and they don’t want to pay for a higher level of quality when they don’t need to. So I mean it when I say that I’m not criticizing people who choose to do mediocre work. There is certainly a market for it. There are plenty of times when I have chosen not to pay more to get higher quality. If I’m hiring a lawyer to do a basic real-estate closing, for example, I don’t need David Boies to handle that for me.

Because Bob does mediocre work, there’s no need to differentiate the work that he does. The clients who come to him for that level of service all expect roughly the same from him.

For that reason, when all the work and all the clients are essentially equal, then the best way for Bob to price his work is by merely measuring the time spent and multiplying it by his standard hourly rate (which is, unsurprisingly, average for his market). In other words, Bob is effectively “weighing” time on a scale, rather than assessing the value and quality of the work. When a consumer is buying a commodity like sugar, it makes no sense to do sophisticated lab analysis of each individual crystal. Just weigh it. Five pounds of sugar? That will be five dollars, please.

So if Bob is content doing mediocre work for customers who aren’t looking for more, then by all means he should bill his hours. It’s the most efficient way to track his work when all of it is essentially the same. It’s only when work is differentiated — based on the types of customers and the value that they place on the results — that it makes sense to price.

As I said, Bob is fine (as a pseudonymous, palindromic, mediocre lawyer). If you’re a professional and you want to be like Bob, keep billing your hours. But if you’re not interested in being mediocre (or if you suffer from aibohphobia), then it’s time to learn how to price.

Don’t do what you’re good at

Here’s a short (19:47) video of a talk I gave recently at Super Conference II in Boston. In it, I warned over a hundred lawyers that the advice that they’ve been given — “Do what you’re good at” — is actually bad advice. Instead, they should find their outstandingness. (Yes, I know: that’s not in your dictionary. Well maybe your dictionary is broken. Or quite possibly, I made it up. Either way, you already know what it means.)

By the way, even though I was addressing lawyers, this advice holds for anyone in business.

Thanks to the Massachusetts Law Office Management Assistance Program and the Massachusetts Bar Association for hosting the conference and providing the video.

The so-called art of billing

Lawyer James Conway describes the art of billing on the site JDs Rising:

This is very simplistic, but you only get paid for things you actually bill to the client. If it doesn’t make it onto the bill, you won’t get paid for it. Remember that quick email you sent from your blackberry? Bill it. Remember that “two-second” question that turned into a ten minute diatribe? Bill it. Remember when your partner walked through your open office door and you had a twenty minute brainstorming session on litigation tactics? Bill it. Unless you express your time, you can’t get paid for it. Further, unless you describe all of your work, your client doesn’t understand all the value you are providing for the fee that you charge.

No wonder people hate lawyers.

It’s not that the “client doesn’t understand all the value you are providing.” If the lawyer thinks that the value comes from the time spent sending a quick Blackberry email, then the lawyer doesn’t understand the value. A lawyer (or any other professional) who understands value prices it. Everyone else just measures time and bills it. And annoys the hell out of their clients.

This guy’s walking down the street when he falls in a hole

An old Lifehack post called “10 simple ways to save yourself from messing up your life” has excellent common-sense advice on how keep yourself from falling into an emotional hole. Since lawyers are 3.6 times more likely to suffer from depression than other workers, I know a lot of people who could benefit from the advice. Here’s the first of the ten:

1. Stop taking so much notice of how you feel. How you feel is how you feel. It’ll pass soon. What you’re thinking is what you’re thinking. It’ll go too. Tell yourself that whatever you feel, you feel; whatever you think, you think. Since you can’t stop yourself thinking, or prevent emotions from arising in your mind, it makes no sense to be proud or ashamed of either. You didn’t cause them. Only your actions are directly under your control. They’re the only proper cause of pleasure or shame.

The other nine are just as good. Click the title above and read them.

By the way, this post’s title refers to the story Leo McGarry tells Josh Lyman.

Simplicity and lawyers

A friend of mine recently complained how things become so much more complicated once the lawyers get involved. And quite frankly, he’s right. Lawyers do tend to make simple things more complicated. Part of the reason for this is because lawyers are trained to spot issues and raise them before they turn into problems. This is a legitimate and valuable role for lawyers. They are trained in law school to become experts at issue-spotting.

But for many lawyers, this becomes a habit. They end up focusing too much on spotting issues and detecting things that can go wrong. Trying to plan around these issues necessarily complicates the job at hand.

But it doesn’t have to be that way. Instead of just focusing on spotting issues, the better lawyers look for ways to help the clients do what they want to do.

This isn’t a new concept. More than 100 years ago, legendary financier J.P. Morgan explained the proper role of lawyers to his own counsel:

I don’t know as I want a lawyer to tell me what I cannot do. I hire him to tell me how to do what I want to do.

What a beautiful and simple concept. Telling your clients how to do what they want to do.

Two kinds of lawyers

There are only two kinds of lawyers in the world:

Lawyers who price, and lawyers who don’t. Everything else is lip service, or window dressing, or sleight of hand.

Lawyers who price work very hard to try to figure out what their client’s needs are and what the value is to the client of satisfying those needs. They then come up with a price that is less than or equal to that value, and they tell the client that price before performing the service. The client either accepts that price or does not, and if so, the lawyer does the work at that price. And the price for that service doesn’t change. If the needs unforeseeably change, then a new price will be arrived at. But remember: we’re talking prices, not estimates.

And that’s it. It’s that simple. (It may not be easy, but it’s simple.)

If you don’t do this, then you’re the other kind of lawyer: the kind who doesn’t price.

Obviously, lawyers who bill their time make up the bulk of this category. Telling a client what your rate is and then giving a vague estimate of the time you think you might spend is not pricing. Not by a long shot. Making adjustments to the bill at the end of the month to put the total amount more in line with the value delivered is not pricing. Tracking your time to try to determine any kind of concept of value is not pricing.

Capped hourly fees are not pricing. Blended rates are not pricing. (They’re just a ripoff.) Hybrid fees are not pricing. AFAs (“alternative fee arrangements” — the in-vogue thing to call different alternative billing schemes) are not pricing.

Giving clients a choice between a price and hourly billing isn’t pricing. It’s a copout, and it tells the client that you don’t believe in the value of your services. Tracking your time to see if your “losing money” on priced engagements is the same kind of copout.

Project management is not pricing. Six Sigma is not pricing. Neither is Lean Six Sigma. Or Portly Six Sigma. Or whatever. (And I don’t care if you’re a black belt, orange belt, or a braided-leather belt with a giant John Deere buckle. It ain’t pricing.)

You can go to all the two-day seminars on AFAs you want, but mostly you’ll be learning about Not Pricing. Your time would be better spent learning about your client and how they value the solutions to their problems and whether you can make a profit solving their problems for that amount.

That’s pricing.

Originally published on The Client Revolution

There are only 2 types of law-firm fees

If I read another article about “alternative fee arrangements” or hear of another two-day seminar explaining all the various and complicated AFAs out there, I’m going to try to swallow my tongue. (Disclaimer: This is of course hyperbole. I’m not going to do that. And don’t you try it either, just to see if you can do it. You can’t. End of disclaimer.)

Lawyers beholden to the Prohibition Era model of billing and the consultants who court them are desperately trying to show how complex and scary AFAs are. The clients and other lawyers who read these articles and go to these seminars walk away shaking their heads and surrender to sticking with the old billable-hour model. Maybe with a discounted rate, please.

But I’m here to tell you that it is not at all complicated. In fact, if you have seven seconds, I can tell you about all the different types of law-firm fees. Ready?

There are two:

  1. Time-based pricing
  2. Solution-based pricing

That is all.

No, really. It’s no more complicated than that. Time-based pricing is what nearly every law firm does, where the price of the legal services depends on the time spent doing the work and the rate of the “timekeeper.”

(In truth, I’m being generous here, because it’s not really “pricing” at all. Pricing is when you tell the client what something will cost them before they buy it; time-based law firms don’t do that at all.)

Under the time-based-pricing model, invented in 1919, every activity is worth the same amount on a minute-by-minute (or really, six-minute-by-six-minute) basis, regardless of how important the task is. With few exceptions, every client is charged the same per hour, regardless of their differing needs. The only measurement of value is the amount of sand that has dropped in the hourglass.

Solution-based pricing is when a law firm sets a price based on the value of the solution to the client. It’s that simple. I’m not saying it’s easy, because it’s not. It takes a lot of thought and preparation and understanding and empathy and experience to figure out how much this particular client values this particular solution at this particular moment. But that’s OK because we’re professional knowledge workers, not pieceworkers in a pin factory.

Clients — simple question: Do you want the price of your legal work to be based on the time lawyers spent, or on the value you place on the solution? It’s one or the other.

(See, I just spared you that two-day seminar on AFAs. You’re welcome.)

What do you think? Can you come up with any other methods? Bet you can’t. But give it a shot in the comments. (I particularly look forward to time-based lawyers protesting about how hourly billing is a kind of solution-based pricing. Good luck with that.)

Originally published in The Client Revolution

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