Burying the Billable Hour: Eight Steps to Implementing Value Pricing in Your Firm
By Ronald J. Baker
A business is defined by the value it creates for its customers. Your price speaks volumes about your value proposition, more so than any other component of your firmâs marketing. The business world pricing revolution began in the 1980s, when many of the Fortune 500 companies began to employ professional pricers, and organizations such as the Professional Pricing Society being founded to assist companies in achieving excellence in pricing for value. Yet many law firms are still defined by âhourly rates.â The legal profession has taken its collective intelligence, experience, judgment, education, wisdom, knowledge, and intellectual capital and commoditized them into a one-dimensional hourly rate. This article will illustrate that pricing by the hour is the wrong measure to determine the value created for the clientâlike plunging a ruler into your oven to determine its temperature.
Theories of Value
Professionals undervalue their services because they are operating under the labor theory of value, which posits that the value of a service is determined by the amount of labor used in its production. Conversely, professionals who subscribe to the subjective theory of value believe that the services they offer are only valuable to the extent that there is a potential buyer desiring them. Value is in the eye of the beholder. For any transaction to take place, both the buyer and the seller must profit from the exchange and receive more valueââin their subjective perceptionââthan what they are giving up.