Have you ever thought about how much internal effort is expended on your clients’ behalf, as opposed to how much external value is actually generated or billed? According to the VeraSage Institute’s founder, Ron Baker, not “everyone” is in charge of putting forth value in your firm. (VeraSage is a professional association whose members put forth independent thinking models of economic pricing.)
Baker believes that all value exists outside of business or firm. There’s no “everyone owns everything” motto—or there shouldn’t be—because then, he believes no-one really owns anything. Taken one step further, he says: “All results are external, there is no such thing as a “profit center”. He believes that ” there are only cost, activity and effort centers [and that] [t]he only profit center in your firm is a customer’s check that doesn’t bounce.”
In Baker’s world, lawyers must put themselves in their clients’ shoes and ask: what does he or she value? Lawyers Weekly encapsulated Baker’s comments, calling attention to Baker’s insistence that companies/firms all need one person at which to point an accusatory or congratulatory finger, as the case may be. He has given this official the title of Chief Value Officer. Firms must price “on purpose”, he says. (There should be no hourly billing.) According to Baker’s Institute, “Profitability = Intellectual Capital x Price x Effectiveness”.
Baker’s also broken down the components inherent in this appraisal. His formula is as follows:
For firms to price on purpose, they must understand the Five Cs of Value.
1. Comprehend value to clients;
2. Create value for clients;
3. Communicate the value you create;
4. Convince clients they must pay for value; and
5. Capture value with strategic pricing based on value, not costs and efforts.
Pricing on purpose will always be one of the chief components when assessing value. In a recent Above The Law post, Jay Shepherd wrote that firms have to stay committed to pricing. “Most firms I talk to that have tried pricing have doomed themselves to failure because they haven’t committed to it…[c]olor me committed,” he notes.
Shepherd recommends that firms avoid menu pricing and form a pricing committee. It’s tough to price for your clients, especially if, as he also suggests, you no longer rely on time sheets. You have to “weed out” the most extravagant prices. That’s why you need colleagues to weigh in. (“Even non-lawyers can contribute on a pricing committee,” he says.)
To learn more about an audio conference that takes a practical approach to the topic of value by aiming to optimize client satisfaction and maximize service value, go here – (CD’s also for sale):