Leverage" connotes power. For legal service marketing, that means pricing power. It's hard to have a profitable law practice without pricing power.
When you consider how your clients look at the price of your services, ask yourself: Is your expertise and projected contribution
- In greater supply, relative to demand?
- In greater demand, relative to supply?
If a Seller's knowledge or experience with the Buyer's problem is in high demand or is perceived by Buyers to be in relatively limited supply, the Seller has pricing leverage.
At the extreme upper end of the spectrum, you see occasional articles such as "BigLaw's $1000-an hour Plus Club" that appeared in the Wall Street Journal, in which some corporate buyers of sophisticated legal solutions express little concern about those rates (although all caution that that's certainly not a norm).
For example, Janine Dascenzo, associate general counsel of General Electric Co., said that her company is willing to pay what it must when it needs a lawyer with "unique" expertise. "We'll keep paying them a lot of money, because they're worth that," she added.
If Buyers perceive that the skill or experience in question is in relatively low demand or plentiful supply, then Buyers have almost all the pricing leverage.
When that happens, rates drop fairly quickly and steadily. Commercial loan documentation, insurance defense, and some categories of employment work are a few examples of many legal services whose collectible rates have dropped noticeably over the past ten years.
At the extreme lower end of the spectrum you find services where disruptive innovation and automation have made a number of legal services free or very nearly so. This is more prevalent with consumer-facing services such as simple wills and contracts, leases, divorce, incorporation and any number of related filings. Some solos and small firms have felt this shrinkage acutely.
Beyond supply and demand
It's not merely a question of perceived supply and demand. The "maturity" of your service figures in significantly. When a high-impact business problem first emerges, it takes a while for lawyers to associate themselves with it, which can cause Buyers to perceive that there are only a few lawyers who can reliably help them. They willingly pay premium prices to obtain those services immediately. Pricing leverage rests with the early Sellers.
Over time, however, Buyers' experience with the problem grows, the solution becomes demystified, and they become more confident that the risk of hiring the wrong lawyer declines. That expands the perceived supply of lawyers who likely have the necessary expertise. When a solution/service passes its maturity and goes into decline, and pricing power shifts permanently to the Buyers. They'll leverage the greater supply to reduce the price.
So, what can you do in response to these basic economic forces?
- Don't get married to your inventory. Whatever problem you're solving now will decline in importance and value to you and your client.
- Constantly refresh your personal brand. Become an industry expert. Be among the first to recognize and brand yourself with emerging, high-value business problems. Then you'll enjoy the pricing leverage.
- Replace mature services before your client demands a price you can't live with. Recognize that at some point it simply no longer makes sense to pay your rate to solve mature problems, even if your client wants to continue using you.
By maintaining a high-leverage practice you strengthen your relationship with your client. You'll always have a greater positive impact on their business and personal success.
For step-by-step help with the “how” part of this, take a look at these RainmakerVT online courses: