The False Comparisons of Hourly Pricing
August 10, 2020
If you price your services by the hour, you’re setting yourself up for false comparisons which may create headaches in your client relations or might even cost you business.
Consider this national map of average hourly attorney rates, taken from the 2019 Survey of Legal Trends conducted by Clio. When you look at this map, what’s the first thing you do? Here are the typical reactions:
- Look for your home state to find the average there
- Look for the least expensive state
- (Possibly) look for the most expensive state
- If you have an attorney that charges by the hour, compare their rate to those presented in this survey
- Compare all these rates
(You can find the full article, which contains this map, here.)
What are your conclusions? Here’s what I suspect are typical questions and thoughts business owners might have after looking over this map:
- “What makes my attorney so special? I work just as hard as they do—probably harder--and I don’t make anywhere near this amount per hour! Ridiculous!”
- (If my attorney is charging more than the going rate in my state) “What makes them think they’re so special? I think I’m getting shafted.”
- If my attorney is charging less, it could go either way. I may celebrate, thinking I’m getting a good deal. On the other hand, I may question the quality of the legal advice I’m getting.
- Some may look at rates in West Virginia or Iowa and think: “Hmmm, I think I need to get an attorney there.” (Probably impossible because I’d have to find someone there who’s a member of the Georgia Bar, but a lot of people won’t think of that.)
- Others might also look at those West Virginia and Iowa rates and think, “Hmmm, I wonder why the attorneys are so bad there?”
While all these comparisons are typical, they are also misleading:
- The hourly rate, of course, doesn’t give you the final price. You must know the number of hours to determine the final bill. Some attorneys won’t charge for brief phone calls, and some seemingly charge by the nanosecond. Some attorneys have legal assistants who handle routine tasks at a much lower rate. There are numerous factors which go into the final bill you receive.
- This survey is from all attorneys, regardless of their practice area. Rates vary significantly based on practice area.
- The hourly rate doesn’t measure the quality of the advice and service you receive.
- The hourly rate doesn’t measure the costs of legal disasters your attorney saved you from.
- The hourly rate doesn’t measure how much more successful your business is because of the advice and assistance provided by your lawyer.
- At worse, hourly rates create analogies which are completely illogical, such as when I compare my attorney’s rate to my own non-legal profession rate or some other rate that I think is “reasonable.”
Hourly rates create a situation in which clients make false comparisons, and it’s not their fault. When individuals assess whether to buy or how a purchase turned out, they use relative comparisons. We all do this with every purchase.
The only question is what standard of comparison a client uses. Is the yardstick value-based or price-based? Whether you are an attorney or provide some other professional service, you want the client focus to be on the value you are delivering. That comparison is not only fair to you, but it’s perfectly reasonable and logical for the client, too.
If you’re pricing by the hour, though, you are setting yourself up for comparisons which are terrible for both you and your client. For your client, their attention is diverted away from the value they are receiving from the good work you are doing, hopefully.
And for you, professional services provider? You’re a commodity. You’re now no better than an apple or an orange.
Image Credit: JumpStory
©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.