Mastering Your Pricing Strategy and Commentary for Law Firms
Pricing is one of the most powerful tools in our business toolkit, yet it’s often misunderstood or undervalued. During a recent webinar led by experts Rob McKay, Veronica Broomes, and Jenny Miller, several key strategies were discussed that could help refine businesses’ approach to pricing. Here are some insights and actionable advice drawn from their presentations that we can apply to our own businesses to strengthen pricing strategies.
Move Beyond Competitor-Based Pricing
Many businesses make the mistake of setting their prices based solely on what competitors are charging. Veronica Broomes highlighted that while this approach may seem logical, it often leads to pricing that doesn’t reflect a company’s unique value proposition. Instead of just reacting to competitors, businesses should focus on understanding what makes them different and what their customers truly value.
The reality with competitor-based pricing is that you have to be within reach of your competitors, but not be focussed on being the cheapest or one of the cheapest if you are offering a high quality service. We regularly get told by new clients that they can get their legal recruitment from another agency for 10% (we charge 18% at the time of writing this article) and we always wish them good luck. 10% fees are not economically sustainable for a business of our size. We see the same at times with conveyancing firms – trying to undercut rivals.
Advice: Conduct customer research to understand what aspects of your product or service are most valuable to them. Use these insights to set prices that reflect your unique offerings, rather than merely following industry standards.
Utilise the Price-Value Matrix to Find the Right Positioning
The Price-Value Matrix is a tool that can help businesses decide where they want to position themselves in the market. This matrix involves mapping out where a product or service sits in terms of price and perceived value. Pricing too low may create a perception of low quality, while pricing too high can limit accessibility. This is the hardest bit of pricing for professional services – what is the tipping point – see the pricing thermometer concept below!
Advice: Evaluate where your product or service currently stands on the Price-Value Matrix. Are you positioned as a high-quality, high-price provider, or a low-cost, low-value option? Adjust your pricing strategy to better align with the value you deliver and the market position you want to occupy.
Apply the “Pricing Thermometer” Concept
Jenny Miller introduced the “Pricing Thermometer,” a helpful way to think about pricing. Imagine your costs to deliver at the bottom and the perceived value to the customer at the top. Your price should fall somewhere between these two points. This framework ensures that you cover costs while also reflecting the value customers perceive.
Advice: Review all your costs, from your production to delivery, and determine the value your product or service offers to customers. Position your price to cover costs and provide a margin, while still presenting a compelling value proposition.
Communicate Your Value Clearly
It’s crucial to differentiate between the tangible and intangible benefits of your product or service. Tangible benefits might include time saved, reduced costs, quality advice clients can rely on, while intangible benefits could involve brand prestige or emotional satisfaction. As the webinar speakers noted, clearly communicating these benefits is essential for justifying your prices.
Advice: Ensure that all customer-facing communications whether on your website, marketing materials, or sales pitches clearly convey both the tangible and intangible benefits of your offerings. Consider using customer testimonials or case studies to showcase the real-world value you provide.
Offer Choices to Enhance Customer Empowerment
Providing customers with different pricing options, such as “Good, Better, Best” packages, can empower them to make decisions based on their preferences and needs. This approach can move customers away from a simple yes/no decisions to a more engage choice between different options. We offer tiered packages for our business broker services for law firms and accountancy practices – mainly so we can get involved with our clients to the depth they want us to as well as provide additional marketing services with our higher premium packages.
Advice: Develop tiered pricing packages or service levels that cater to different customer segments. This strategy can attract a wider range of customers and encourage upselling by presenting more premium options.
Use Psychological Pricing Techniques
Psychological pricing methods can influence how customers perceived prices. For instance, ending prices in .99 can make them seem lower, and presenting prices in smaller fonts can make them appear less expensive.
Advice: Experiment with psychological pricing techniques, such as charm pricing (ending prices with .99) or strategically placing higher-priced items first to make subsequent options appear more affordable. These small adjustments can significantly impact customer behaviour.
Regularly Review Your Pricing Strategy
Pricing isn’t a one-time decision-it requires regular assessment. The webinar emphasized the importance of reviewing pricing regularly, ideally every six months. This ensures that your prices remain competitive and aligned with market conditions, cost changes, and customer expectations. Incredibly hard to do regularly, but good practice. We do not subscribe to the 5% rule – this was invented by an accountant some years ago – ie that you put your prices up by 5% on an annual basis and your clients accept it. Seems very common in the accountancy sector. Last time our accountants pulled this one on us we changed accountants..
Advice: Implement a pricing review schedule and stick to it. Use these reviews to assess your pricing strategy considering current market trends, cost changes, and competitor actions, adjusting as needed to stay competitive and profitable.
Move Away from Time-Based Pricing Models
For businesses offering professional services, pricing based on time-such as hourly or daily rates-can create conflicts and doesn’t always reflect the true value of the service provided. Instead, consider value-based pricing models that are better aligned with the outcomes you deliver to clients. Very relevant to law firms, but it can be very difficult to move away from time-based pricing when there are so many uncertainties.
Advice: Explore alternative pricing models, such as project-based or performance-based pricing, to better capture the value of your services. This can lead to more predictable revenue streams and stronger alignment with client expectations.
Get Creative in Challenging Markets
In tough economic conditions, simply raising prices can be a challenge. However, there are creative ways to adjust pricing without alienating customers. Consider offering flexible payment terms, discounts for upfront payments, or adding value through extra services.
Advice: Assess your market conditions and explore creative pricing strategies that maintain customer loyalty while ensuring profitability. Look into bundling services, offering loyalty programs, or providing flexible payment options to adapt to changing market dynamics.
Build Confidence in Your Pricing Strategy Across the Team
Lastly, pricing confidence should be built across the entire organisation. If your team doesn’t fully believe in your pricing strategy, it can lead to mixed messages and unintentional discounting. Consistency is key to maintain your pricing integrity.
Advice: Educate your team on the rationale behind your pricing decisions and ensure they understand the value proposition you are offering. This will help maintain consistent messaging and prevent unintentional undermining of your pricing strategy.
Conclusion: Use Pricing as a Strategic Tool
Pricing is not just a number; it is a strategic tool that can drive business growth, influence customer perception, and impact profitability. By applying these insights and regularly refining your pricing strategy, your business can better align its pricing with the value offered, adapt to market conditions, and achieve sustainable success.
