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July 06, 2006

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» The REAL reason for lost clients (and referrals) from Automatic Referrals
Michelle Golden over at Golden Practices explains that poor service is not, in and of itself, the reason that clients walk away or fail to refer. In fact, she says, the real reason is a failure to understand, set, and [Read More]

» "At what cost?" Moment-of-Truth Decisions from Expertise Marketplace - Professional Service Firm Marketing Blog
Last week, with what I thought was reasonable clarity, I made a decision to attend an event. This week, after having attended the event, I realized that it actually cost me more -- not in money, but in the expenditure [Read More]

» Why Are You Really Losing Clients? from Legal Ease Blog
Michelle Golden of Golden Practices has an excellent post about the real cause of lost clients in professional services firms. As her post notes, the 'reasons' law firms think they lose clients aren't the real reasons - they're just the [Read More]

» Golden Practices from Client Service - Leo Bottary
Here's the beauty of the blogosphere and the power of linking. I was reading Peter Himler's post yesterday. His blog is called The Flack. On his site, he has a link to blogdigger, which led me to a post on Legal Ease Blog, which brought me to [Read More]

» Carnival of Client Service from What About Clients?
Allison Shields at Legal Ease Blog had "Why Lawyers Are Bad at Client Service" and "Are You Really Losing Clients?", inspired by a Michelle Golden post...and lawyer-consultant Matt Homan at The Non-billable Hour is not only full of ideas and... [Read More]

» A Short But Happy Carnival of Client Service. from What About Clients?
There is no shortage of posts these days about the truly cross-cultural challenges of better client service. We start with better client service thinking. Allison Shields at Legal Ease Blog had "Why Lawyers Are Bad at Client Service" and "Are... [Read More]

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Carolyn Elefant

This is an interesting post, I'd say that I agree with about 80 percent of it. But what the post does not acknowlege (nor do many law practice management gurus) is that sometimes, price really is the reason.
I have this issue on my mind because of my recent experience with the doggie daycares in my area. For two years, our family has owned a very sociable, rambunctious and deaf Old English Sheepdog puppy to whom we're very attached. When we travel, I could not bear the thought of leaving her at a kennel, where she'd spend the day in a small cage. So when we first went away, I found one of the few "doggie daycares" in the area, with open play areas (all dogs together), multiple providers and even a webcam so that our dog would enjoy herself while we were gone. The daycare cost $50 a day versus the going rate of $20, but it was worth it to me. After we had been using the service for about a year, the owner raised the price to $60 a day and started charging $3/day if you did not bring your own kibble. While the kibble charge did annoy me, I was willing to live with the price increase as I still liked the service and could avoid the kibble charge by bringing my own.

But a few months ago, a doggie day care opened about a mile from my house (the other one is 10 miles away). It charges $40 a day for identical service and also cheaper hybrid options (e.g., play together in the day and sleep alone at night). And, no kibble charge, unless you want to buy an ice cream treat for your dog. We will be away for four days next week and our puppy is already registered for this new place. The total cost will be $140 for the four days as opposed to the $240 that I would pay at the other place. I was completely, fully satisfied with the other. I am changing entirely because of cost.

I believe that these decisions are made in the legal profession as well. What typically happens, however, is that a client may talk to the firm in advance and the firm will extend a discount. But not always. I really feel that law practice management community does lawyers a disservice when it pretends that price does not matter, because sometimes, it really, truly does.

Michelle

Hi Carolyn, thanks for your comment. You raise good points and your example is helpful. Funny thing about price...let's talk about that.

Price can indeed be a reason to leave. But wouldn't you agree that in most professional service environments, buyers don't have most of the advantages that you had in your doggie daycare experience? I'll explain.

In your example, you were well aware of the price in advance of choosing to use the service initially and then continually aware of the price as it escalated. You, as the buyer, were then able to make an informed decision about whether the value of the service was comparable elsewhere for a lesser cost.

The doggie daycare centers, in both instances, decided that $40 and $60 per day, plus extras, were their respective "Is it worth it for us to do it" prices. You, in turn, have or develop your "walk away price" in your mind. You made a choice based on a variety of factors though you maintain the comfort to you of how your dog would be treated was foremost and worth the higher cost UNTIL the exact services became available elsewhere, which also happened to be more geographically convenient.

I've little doubt that the higher-priced provider found demand increasing for their service and found that they could easily stay at their desired capacity even though they knew they'd lose some customers with a price increase. Much like professionals (with limited hours and people available) they have a fixed capacity both in physical (boarding) space and ability to provide the high level of attentiveness they promise. Would you agree there is a parallel to professional services here?

REALLY IMPORTANT
Let's look at what both doggie services provided to you: 1) a clear description of what you would get (value to be received); 2) clarity in the price you would pay and what to bring (your responsibility in the relationship); and 3) delivery of what they promised.

The buyers of any services billed by the hour are seldom recipients of the gift of "certainty of pricing" and they are rarely privvy to clearly established expectations about deliverables and service. (Dangerous because people each have very different ideas of what "service" means to them.)

PRICING STRATEGIES
Pricing is one of the four Ps of marketing and it is certainly a reason that people will choose to do, or not do, business with you. That's an accepted fact--I don't challenge it. The issue for professional service providers is that the billable hour model doesn't satisfy the buyer's need and right to know what their price will be. (you may regret bringing up pricing with me...sorry!)

Because people will always consider price in their buying decision, in a free-market economy, price options will be available through healthy competition. That is where positioning comes in. Do I want to be a luxury firm? Or an ecomony firm? (Doggie Daycare II choses to enter the market competing on price. No doubt they studied the pricing of DDI first.)

Whatever the decision, and neither is wrong, for a business to be as healthy as possible and reputation strong, buyers HAVE to be able to make their decision BEFORE they purchase--and before the work is done.

But not professional service firms! They don't want to eat one minute of "time" so they tell the client "I don't know how long it will take but hour hourly rate is $x. We will only bill you for the actual time it takes in 15 minute increments." The poor customer then gets a bill for however many hours times however many dollars--a figure probably unknown to them until they opened the envelope.

The trade off for firm attempting to put all the pricing risk on the customer (pricing after the work is done) is that the firm must face collection woes and steeper write-offs.

This failure to discover the degree to which the buyer will value what the seller is providing, before services are rendered, leaves a wide open gap for the buyer to devalue the work after it is done.

To the firm, the symptom of this failure looks like "I don't like your price." There is a lot of denial among professionals that the real issue is usually not the price itself.

How often does a customer receive that mystery bill and think: "Wow, it was only that much? Cool!"? It does happen sometimes, but I bet it is much less often than they open it and think: "Holy cow, how did it end up costing this much?" The ONLY reason the customer then comes back and asks "why did it take so darn long?" is because they've been billed by the hour--something they could not control--resulting in a total they were not informed of prior to the cost being incurred. Then we point back to our hours to "justify" the price. Their challenge is NOT because they really care about how long it took.

Pricing work after it is performed is a totally unfair way to price and it will continue to cause unhappy customers.

LEAVING FOR PRICE
I will concede, 100%, that professional firm customers have left for price alone wherever you will show me that the customer knew the price up front and the firm used change orders (in advance, also) to obtain authorization for any/all price changes. When this happens, and the customer chooses to go elsewhere, and they've said it is because of price, then it IS truly a price issue.

Otherwise, a complaint about price is indicative of an expectation issue surrounding value related to the cost.

When people do leave stating price is the reason you'll definitely know that your value proposition, in their eyes, does not appeal enough. Perhaps the unique buyer's walk away price has simply been exceeded. Or maybe it's not necessarily a lost cause. There are instances where the value proposition may be something that can be improved.

It might be that the firm has just poorly articulated its value propositions (unconvincing). Or, possibly, the firm could recover that customer by adding more value (persuasion). Could DDI win you back by providing a pick-up/drop-off service for puppy?

WRAPPING UP
To recap, part of the solution is defining the SELLER'S PROMISE: the value--your doggie daycare's offerings (and note how they resonated with your emotional need, just as professional services should).

The other part is defining the BUYER'S PROMISE: how much they will pay, and on what terms, as well as other things required of them (such as bringing your own kibble).

A core need of human beings is to understand their role in business transactions. If you think about it, we literally STEAL this ability from buyers when we don't provide price information up front. This creates mistrust or at least worry, from the start. Mistrust leads to nitpicking and dissatisfaction. When we complain that customers are annoying with these behaviors, we need to recognize we are causing them.

Think about how you maintain positive feelings about the first daycare: "I was completely, fully satisfied...." The difference between your example and most professional service firms (only a small number offer pricing in advance) is that the customer who leaves a PSF for price doesn't usually express that same feeling...they tend to feel taken advantage of or misunderstood.

This can be avoided if we'd have a conversation offering a clear idea of the price (fixed, range, whatever) in addition to the other engagement expectations.

RJON@HowToMakeItRain.com

THANK YOU for getting this important discussion going.

In my experience as a solo lawyer & from having helped several thousand other solos & small firm lawyers with every law firm marketing & management issue any reader can probably think of (from my days as one of the Practice Management Advisors with The Florida Bar's Law Office Management Assistance Service program) I have the following -perhaps unique- perspective. . . Clients sometimes leave because of price. But more often, Clients leave because of cost. Let me explain. . .

I think part of the confusion is that at least two important distinctions are not being made:

1.Price vs. Cost; and
2.Losing a Client vs. being Fired


PRICE vs. COST

The first distinction it may be helpful to make is between "Price"… as in, the amount of money required to obtain a product or a service; and "Cost"… as in, the net value of the product or service in question.

If a client lacks the funds to pay your fee, the "price" is too high for that client, regardless of how much better-off they would be if they hired you. If the “cost” of your service is too high, it simply means the client has the money but doesn’t think you’re worth it. These are two different problems and benefit from different strategies.

PRICING STRATEGY
If the price of your services is too high you can assess your inventory of available hours, the probability of selling those hours for more money before they expire, and then either lower the price if you want to get hired by a given client, or else invest those hours on Rainmaking so you don't have to face that kind of tough decision again. Offering more value to justify a high price to a client/prospective client who doesn’t have the money only sets you up for an a/r problem.

COST STRATEGY
If the cost of your services is too high (stated another way, you’re not delivering enough value) you can either lower your prices to match the value of your services, or else find a way to deliver more value. “I could pay you $1,000 to draft that contract but I’d rather fill-up my boat with gas instead.” Perhaps you could demonstrate to that prospective client the “cost” of not having a solid contract, or the value of peace of mind relative to a boat trip, or find a way to offer more value to make your legal services seem to be a better choice than a day on the water. Once you know that what you’re dealing with is a cost and not a price objection, any of these approaches are probably better than cutting your fee.

----------------------------------------------------------------------------------------------------
“LOSING” A CLIENT vs. BEING FIRED

The Second distinction I think it would be helpful to make is between "losing" a client…because they do not hire you vs. a client "firing" you (even if it's a firing by attrition, which happens alot).

Lawyers - and marketing gurus (I'm both) lose clients all the time for all kinds of reasons. A client who hired you once has different needs this time around, or a different zip code, or the best reason of all...when we solve the problem so well that they no longer need to hire a lawyer at all. Nothing makes me happier than when I "lose" a client because I've equipped him or her with all they need to be successful, and so they don’t need to hire me again.

But that's not really what happened to Ms. Elefant's former doggie day care provider. They were fired because a better option became available. Another facility opened up closer to her home making it a more convenient option. The price was also lower, but I suspect that even if the former facility offered to match the low price, Ms. Elefant would, understandably, save herself 18 miles of driving to achieve the same or comparable result: The safe care of her dog.

In every market there are law firms that are charging $150/hour and losing business to others that charge $250/hour but provide better service and/or a more hospitable experience, including more predictable fee, better explanations of the process, etc. I think this latter point speaks directly to the one Ms. Golden was making: Alot more goes into a client’s decision to fire a lawyer than simply the digits on the bill.

Communication, communication & more communication is a Rainmaker's most valuable asset for Turning Your Clients Into Gold.

Respectfully,

RJON ROBINS
www.HowToMakeItRain.com
Helping Lawyers In Small Firms Make ALOT MORE Money!

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