How Not to Defend Your Rate Increase: The Law Firm Edition

August 2, 2019

According to the latest Altman Weil survey of law firms, rate increases were the norm last year. Of those firms who responded, 61% report rate increases which are more aggressive than in previous years.

A new question was added to this year's survey:  "If challenged by a client, how would you justify your firm’s most recent rate increases?”

The most frequent response was "our costs are up."

If you're a manufacturer and you can point to tariffs or some other readily identifiable market situation, then citing costs as the reason for a price increase might be justified.

If you're an attorney, or more generally, a professional services provider, this reason doesn't fly in the minds of clients. Clients don't care about your costs, and there's no reason why they should. They're not concerned about the increased cost of support staff, travel, or office supplies. They have to deal with those increases themselves, so you don't get any sympathy for that.

All they care about is that the value they receive--whether tangible or intangible--be greater than the amount of the checks they write. There's nothing unreasonable about that; on the contrary, it's what all of us do in every transaction we engage in:  look for value in excess of price paid.

The other problem here is that "rate" implies an hourly rate, and hourly rates don't have anything to do with client outcomes or the value clients perceive.

If you're a professional services provider, come up with a better reason for a price increase than your costs. Couch your rationale in the value you're delivering.

While you're at it, rethink that time-based billing, too.

You can read further commentary on the Altman Weil survey here.

©Ray Business Advisors, LLC and John Ray


About me:  I’m enthusiastic about how changes in pricing strategy can significantly change profitability for a business and enhance life choices for business owners. I live this passion through Ray Business Advisors, my outside CFO and business advisory practice, in which my pricing is exclusively value-based, not hourly. I work with business owners on how they can change their pricing not just to increase their profits, but better serve the wants of their customers. Click here to learn more or call me at 404-287-2627.


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