Time to Increase Prices: I Forget, How Do You Do That Again?
With the economy on the upswing, many lawyers are contemplating increasing prices. In many instances, firms and Chambers have held their rates as much as possible and many will not have been able to implement much if any increase over the last five years.
While this is fine in theory there is also quite some anxiety around doing so. First, it remains a sensitive issue for clients and second there is little if any clarity around what should be increased, by how much and how the increase should be communicated to clients.
Raising prices is simply a fact of life when running a business but like every other aspect of pricing, raising prices in a strategic, tactical and structured fashion will go a long way towards successful implementation.
Here are some specific tactics to consider:
Float a Scary Number - signal to the clients that on a pure inflationary basis, an increase of, for example, 15% would be justified but for existing loyal clients, the increase will be limited to 10%. The strategy is perceived to be one that rewards client loyalty and continuity and goes some way towards creating a ‘well, it could have been worse’ response.
Blame Costs - clients don’t want to hear prices are rising to boost partner profitability or even to get profitability back to what was in 2008. It’s textbook to cite higher costs as justification. You should however be very specific in identifying the cost increase culprits such as improvements in the economy in the labour market has put upward pressure on rents, wages and salaries.
Appeal to Fairness - clients are slightly more receptive to a price hike if they perceive it as fair. If you haven't increased your prices in three or more years, then say so. Don’t apologise. But be fair in return. Identify and tell clients that you are removing cost items that really irritate them out of all proportion to the amount; for example, a bill for £5,000 plus £35 for photocopying. Really!? Think of your reaction to being charged 1% (or more) credit card fee by a merchant. If the 1% charge was in the price, you wouldn’t know and wouldn’t care.
Deliver bad news and good news - bad news such as a rate increase can be mitigated if at the same time, you can find a way to communicate some good news. For example, “although we will be increasing our charges for employment advice and HR support, we will be producing a free employment e-bulletin twice a year on latest case law developments and hosting two free employment/HR workshops a year.”
Don’t ‘Buy’ Into Clients’ Own ‘Spin’ - as I keep telling firms I am working with, whether you realise it, clients are negotiating with you from the moment of the first interaction. In response to your discussion about a proposed increase, a typical response might be, “well I have been asking around and nobody else is increasing their prices”. This may or may not be true. Some clients are not beyond outright lying to you. Even if it is true, it is meaningless. Your competition may be on the cusp of also increasing their prices or on the cusp of going into administration. Stick to your guns.
Remind Clients of the Value You Provide - this is just basic marketing and differentiation strategy. However, this is as good a time as any to revisit and identify the things that make you better than your competitors. [Hint, it’s not technical expertise but rather, service levels that matter]. For example, if you are favourably mentioned in Chambers or Legal 500 as providing stellar service then capitalise on it.
Resist the One-Price-Fits-All Mindset - to effectively grow a business, one price does not fit all. Offering clients a range of good-better-best options enables firms to broaden their appeal and market share. Price sensitive clients purchase the ‘good’ option while clients who value the premium offering will pay for the best.
Learn To Say ‘No’ - the notion of saying ‘no’ to a client has been regarded as heretical over the last five years. Even if we could only achieve a fee two thirds of what it should be, the rationale was, ‘well, it's better than nothing. Get the work in’. However, in so doing, whilst we might have survived, we have self-inflicted a huge amount of brand damage from which firms will take some time to recover.
Obviously we don't want to lose clients but if, despite your explanations, they flatly refuse to engage, it is time to give serious consideration to parting company with those clients.
Raising prices is an angst-inducing ritual. The art and science of raising prices involves a forthright yet sensitive dialogue with clients.