How do clients view the price you charge for legal services? Ask yourself two questions:
- Whose contribution is in greater supply relative to demand?
- Whose contribution is in greater demand relative to supply?
If a Seller's knowledge or experience with a high-impact problem is in demand and perceived by Buyers to be in relatively limited supply, the Seller has pricing leverage. If Buyers perceive that the skill or experience in question is in relatively low demand or is in plentiful supply, then Buyers have almost all the pricing leverage.
For 80-90% of traditional law firms' legal work, supply exceeds demand, so sellers have little or no pricing leverage. That's because most legal work is "mature," i.e., well understood, and posing little risk no matter who performs it.
When a high-impact business problem first emerges, it takes a while for Sellers to associate themselves with it. At this early stage of demand, Buyers often perceive that there are only a few lawyers who seem to understand the problem, and who therefore seem able to help them. The potential upside impact of the solution justifies a price premium. Likewise, the potential downside impact of choosing the wrong solution or provider gives similar impetus to buyers' willingness to pay premium prices to obtain those services immediately. Leverage rests with the Sellers.
Over time, however, Buyers' experience with the problem grows, potential upside and downside both diminish, as does Buyers' willingness and need to pay a premium. Likewise, Sellers become more familiar with the problem and the solution and the recognized supply of skilled Sellers increases. When that happens, the solution/service matures, and leverage shifts permanently to the Buyers, who use it to reduce the price.
So, what can you do in response to these basic supply/demand forces?
- Don't get married to your inventory. Over time, whatever problem you're solving now will decline in importance and value to your client and you.
- Constantly refresh your personal brand. Become an industry expert. Be among the first to recognize and associate yourself with emerging, high-value business problems. Then you'll enjoy the pricing leverage.
- Recognize that at some point it simply no longer makes sense for Buyers to pay your price to solve mature problems, even if your client wants to continue using you. Shift yourself to associate with emerging problems before your client is forced to abandon you because you're still charging premium prices for mature work.
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. In turn, this will preserve your access at upper levels of the company. It's not just pricing that declines as problems and solutions mature, but access, too.
Don't be the lawyer who clings to the past as write-downs and lower realization reduce his effective price.
Learn how to associate yourself with emerging problems that make you relevant and valuable to the kind of clients you want most.