As the market moves away from hourly rates to fee-based billing, law firms are facing a significant market challenge. One of the foundations of a functioning market is “free information.” Economists mean “free” in the sense that information about pricing is freely available to everyone in a market. That way the market can continually set prices at that magic point where supply meets demand.
In the hourly rate arena, this free information exists. The market has been setting billing rates by level of experience and type of practice for some time now.
However, when it comes to fee-based pricing this open market does not yet exist. There is not enough market activity to generate this type of information, especially in a “free’ way.
This is especially a challenge for the law firm / suppliers in the market. Although a firm will pitch a type of work to a number of clients at some fee-based pricing level, the knowledge gained is minimal due to the variations in the clients’ situations and needs. Clients, on the other hand, get to see apples-to-apples price comparisons for every piece of work they bid out.
Law firms are blind to this critical market information.
What to do? Like most challenges, this one presents an opportunity; a very valuable opportunity for lawyers to talk to clients about fees. In this situation, you will not be asking a client what the winning bid was, but instead getting a sense from them about what the market is telling them about pricing. Not only will this effort tell you what that client’s expectations are about pricing, but over time, this activity will inform you about what fee-based prices the market will bear.
So … it’s either talk to clients about fees and prices or remain blind to key market price information. You get to pick.