Last week The American Lawyer asked “Is Your Firm Ready?” for alternative fees. Writing in response to recent industry surveys, which confirm the legal industry’s increased interest in alternatives to the billable hour (aka AFAs), reporter Chris Johnson noted pure hourly billing is in decline and is expected to decline over the next few years. That opens the door for “an innovative approach to pricing,” according to Johnson.
In fact, what we call “pricing” today is an evolution that stretches back nearly 30 years, when the American Bar Association formed a Task Force on Alternative Billing Methods in 1987. The goal was to study non-billable hours. From those efforts sprang the industry’s first pricing book, Beyond the Billable Hour: An Anthology of Alternative Billing Methods, published in 1989. Nearly all of today’s progressive thinking can be traced back to that first publication. [For others, see LAW FIRM PRICING LIBRARY.]
Beyond the 1980s–or even the 1920s when the billable hour was created by Reginald Heber Smith–lawyers have engaged in some type of pricing method. For even bartering is a type of pricing, by which I mean an economic exchange rooted in value agreed to by buyer and seller. Unwittingly, law firms have been doing pricing since the day they opened their doors. It’s only in the 2oth Century, with the advent of the billable hour, and in the 21st Century, with an emphasis on financial decision-making, that pricing has become synonymous with numbers.
- Price is more than numbers.
- Price is about value.
- Price is about perceived value.
- Price is about client value.
- Price is about a client’s next-best alternatives.
- Price is about a client’s willingness-to-pay.
- Price is about fairness to the client.
- Price is about a firm’s ability to define its value.
- Price is about a firm’s ability to communicate its value.
- Price is about a firm’s ability to deliver its value.
- Price is about fairness to the firm.
- Price is about the work product.
- Price is about the relationship.
Pricing is more than AFAs, and the legal industry needs to embrace the fullness of pricing and stop allowing AFAs to be the tail that wags the dog.