The Value Pricing Mirage

This is Rule 5 in Zen and the Art of Legal Pricing. This follows from Rule 4, The Burden of Continuity, where clients see what the true cost of over-priced legal services is as the invoices arrive month after month.

Injecting the concept of value into the debate on legal costs was helpful, if overdue. The ACC in particular has made value a more workable concept and is offering some tools and techniques to make it tangible. To the extent that things had to change, value has been a catalyst.

So when we talk about value pricing being a mirage, the point is this:

Value is not an end point in the pricing of legal services. It is but one way to look at the relationship between law firm and corporate client.

Here’s an example; it’s inherently anecdotal, but it is played out many times when a law firm and a corporate client venture too far out on the value plank.

The law firm sees “value” as a way to re-frame old approaches to cost-plus pricing in a new vernacular. With few exceptions, law firms are not changing their economic model, so how can they really change their pricing approach?

The client sees “value” as a breath of fresh air, and a hopeful harbinger of new, lower-cost ways of doing things. The GC may enter an AFA negotiation with real optimism.

That optimism can soon erode as a bitter reality sets in. I have heard more than one GC say that they felt the need for their own counsel to represent them in their AFA negotiations with existing counsel. Defining some metrics or benchmarks isn’t hard. But when the law firms try to push for success or incentive fees cloaked in the value banner, things can get bogged down.

Billion-dollar acquisitions have been closed in less time than low six-figure AFAs.

The biggest thing law firms focus on when shifting toward value (or anything else) is not leaving money on the table. And their marker is always getting at least the full rack rate for their legal services.

Put another way, try being a general counsel who is supposed to sell “value” to a skeptical CFO or a ninja procurement group that practices global supply chain management. Some reaction like “what in the hell are you talking about?” could be expected.

I started out this series with a hat-tip to Robert Pirsig’s bestseller; those who are familiar with that work might already see that you could swap out the search for “quality” with the quest for “value.”

Like that journey across America on a motorcycle, the value oasis may be worth pursuing for awhile, but is likely perpetually just out of reach.

Just over the next hill...

At this point, I hear someone saying:

“Value pricing is a major improvement over hourly billing. Surely we can agree on that!”

Can we? I’m not so sure.

Tomorrow, Rule 6: Two Cheers for Hourly Billing.