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April 6, 2005

LexThink about higher fees (er, value billing)

Filed under: lawyer news or ethics — David Giacalone @ 1:26 pm

Reading through facilitator Sherry Fowler’s list of suggested resolutions from
LexThink participants, I noticed that quite a few of them mention the concept
of “value billing.” (via MyShingle)  For example, one says to “teach lawyers
difference between value, price, and cost” and another says “read Ron Baker’s
writings on value billing ”
I am all for modernizing the law firm and the lawyer-client relationship — so long  complaint billF
as it is a tool for better serving the client’s interests, rather than one that merely uses
modern selling techniques and technology to articificially increase lawyer fees and
profits and to stave off the democratizing effects in the legal services marketplace
of the digital revolution.

I continue to believe that the “value billing” mantra and the constant drum beat
against hourly billing can be contrary to client intersts, if they are not accompanied
by a renewed commitment by each lawyer to the fiduciary and professional obligations
owed to each client.  See Value Billing or Venal Bilking? and chronomentrophobia.
Shark Tiny Gray LexThink participants might want to consider the following discussion from my
piece on value billing, before becoming advocates of Ron Baker’s theory of value pricing
by professionals:
Update: (April 11, 2004):  Soon (I hope), Matt Homann will give us his explanation
of value billing, to help assuage my concern over the use of branding and value
pricing to achieve “premium pricing” of lawyer fees.  Matt suggested last month
that I read The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services by Paul Dunn & Ronald J. Baker.  Matt said that the book “sets out their vision of value pricing and serves as much of the model for my new firm.”   I couldn’t find the
book at my local Library (and won’t pay $40+ to buy one).  However, I did use the “Search in the Book” feature to check out “value pricing” or “value billing”
and ethics.  The results were not the least bit calming for me on whether value billing
will result in reasonable fees or merely produce “premium fees”.
  1. For example (at p. 217) The book asserts there is no ethical contradiction from using value billing.  But, it quotes from an NYSBA report, which says an agreed upon price is fair “subject to market realities and the attorney’s professional obligations”.  Of course, the whole issue is what the lawyer’s obligations are when reaching the fee agreement [disclosure of relevant facts, offering a fee that is reasonable, taking into account the client’s sophistication, etc.].
  2. The book also says value pricing is ethically okay because businesses do it
    all the time — using airlines charging different fliers different prices for the
    same seat, movie theatres’ price for popcorn, and premium ice cream makers,
    as examples.  My reaction:  None of those sellers have fiducial duties; none
    promises to put the customers’ interests first (except when that will incease profits); none sell a product whose qualities the buyer is unable to judge.  As I wrote back to Matt, “If movie theater popcorn is the touchstone for the ethics of value billing, I rest my case.”
Note:  On April 23, 2004, Matt Homann had a post titled “Primer on Value Billing,” in
which he calls Ron Baker “an absolutely amazing visionary.”  [Reminds me of the name
partner at my first law firm, who advised me that the word “amazing” could be used in
place of any expletive.]  In the post, Matt points to a 2001 Baker piece, and says “I guarantee
that you it will give you incredible insights into pricing your services.”  In the piece,
Burying the Billable Hour,” Baker highlights the following pricing strategy from Harry
Beckwith as central to his theory of value billing:
“Like money, price talks. It changes perceptions.
Price changes the actual experience of using the service:
A high price actually improves the experience. Watch
what your price says. Push price higher. Higher prices
don’t just talk, they tempt.”
Let’s think long and hard before that principle becomes the core of lawyer pricing
in the new millennium.
afterthoughts: See , e.g., “Value Billing and Lawyer Ethics“(Jan. 28, 2004); “broadening the billable hours debate” (Aug. 18, 2007)

the bill collector
with shoes on steps inside
to the hearth

in the depths of the lake
billowing clouds

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