In the last segment on How To Alternative Bill – I focused on budgets and understanding your costs as they relate to alternative fees. Although related to pricing, that discussion was more about the ability to drive profitability. The market sets prices, but the costs of delivering your services under those prices determines your profits.

So let’s talk about pricing. Markets set prices through the interaction of buyers and sellers. But how does the market set prices for legal services? Last week I was researching two different subjects that brought this idea into focus for me. On one hand was a post about how law firms have just kept raising rates (a.k.a prices) each year and the other hand was an article talking about the controversy involved in “mark-to-market” practices.

Mark-to-market is the practice of setting price by occasionally reaching out to a market and asking for buyer/seller interaction. Many markets set price continuously (beer and pretzels are two examples). Some markets need to take a more manual approach and set them when deals occur – thus the mark-to-market concept. So how are legal fee prices set in the market? The answer: they aren’t. Billing rates are set in the market, but for the most part there is not a market mechanism for setting fees for most types of legal matters.

The closest thing we have is the “gut” feeling mentioned in my prior post on budgets. So when you go to a client and ask them what they think is a fair market price, they generally shift the conversation to rates and hours. Because that is what the market has valued and priced.

So what the legal market could use is some mark-to-market like benchmarks when it comes to pricing. First thought – I will be rich if I figure this out. Second thought – where does this market information exist? What would be nice is market information about the price of a trial or the price of discovery in a category of litigation. I know – most lawyers will say there are too many variables involved. More accurately there are a range of variables and thus a range of prices. This ‘range’ concept is not unique to law practice and as such is not an insurmountable problem.

Ultimately we would benefit from some form of market to set prices on fees (versus rates). The old fashion method is offering up a sell price and seeing how buyers respond. There are some emerging examples of this. But until law firms offer up pricing by fees and clients can respond within some defined market (even a mark-to-market styled one), we will not have a pricing function.

OK – so this post hasn’t really solved the pricing problem since there isn’t a market to set prices against. Hopefully it has provided a better definition of why the problem exists and one idea for addressing it.