Discounting Your Fees During a Pandemic is for Dummies - And What You Should Do Instead

Discounting your fees during a pandemic is for DUMMIES

by: bradley miller

And what you should do instead

It is 3 A.M. The house is dark and quiet. Your significant other is sleeping soundly on the bed next to you. You suddenly sit up with a jolt, your heart racing and a cold sweat rolling down your forehead. What little sleep you’ve gotten the past few weeks has been sporadic at best. Instead, you lie awake at night wondering if you are going to have enough money to make payroll. What do you tell your staff when

you have to let them go?

One of the worst things you can do in an emergency is panic. When you panic, typically one of two things happen. Either your “fightor-flight” instincts kick in and you start making hasty hormone-guided decisions, or you become paralyzed with fear and indecision.1 Neither are helpful when you are trying to respond in an emergency.

Many law firm owners have been living in a constant state of emergency since mid-March because of COVID. While law firms were classified as “essential businesses” and able to remain open, new client inquiries and legal work dried up for some firms overnight. Most law firms typically

Instead, find ways to add extra or unique value to your services. If you do estate planning, you could offer lifetime annual check-ins to review whether their planning documents need updating. Or you could provide a concierge service by going to your clients’ homes rather than making them travel to your office.

have little if any cash reserves, so the reduction in income has caused many law firm owners to panic and become desperate.

Offering Discounts Will Inflict Long-Term Damage to Your Firm

Looking at an empty bank account is scary. I have been there. The natural reaction is to focus on ways you can get cash quickly. What can you sell? Can you pick up a second job? Do you really need two kidneys?2 For law firms, that usually means figuring out ways to bring in new work.

When you are desperate for work, the common advice is to do whatever you need to get clients in the door. That might include taking on matters outside your core practice areas or offering reduced prices and rates to convince prospects to sign with you.3

The common advice is short-sighted.

While offering discounts can provide immediate spikes in income, the long-term damage to the firm isn’t worth it. Why not?

1. Price is an indicator of quality and value.

Most consumers of legal services don’t know what legal services are worth or how to compare one provider from another. Price, therefore, can indicate to them what the value of the services is or should be.4 A high price leads to the perception of high value; a low price to low value. Apple computers are generally priced higher than a comparably equipped Windows PC. Is the Apple computer better? Maybe, maybe not. But the higher price suggests higher quality.

Clients that pay more are going to assume the services they are getting are higher quality. Conversely, if you discount your services, that signals that your services aren’t as high of quality. I think I would have a hard time finding a lawyer that didn’t want their clients to feel they are getting high-quality legal services.

2. A low price can scare people away.

If you went online and found two identical mattresses – one for $79 and the other for $579 – which would you buy? You would probably wonder why one is priced so low and be skeptical about it. Is the posting a scam? Is the lower-priced mattress filled with sawdust? It just seems too good to be true.

If you charge significantly less for a service than most firms, the natural question is, “why?” Are your services not as good? What does the other firms’ price include that yours doesn’t? Are you selling tires but not including installation? These questions can stick with your firm.

3. If you charge less, you must work more/ harder to make the same amount of money.

A discount of 20 percent requires you to sell 25 percent more services just to hit the same revenue. That doesn’t take into consideration any additional costs you incur to provide those extra services such as staffing, supplies or travel. It is therefore better to have fewer clients at higher prices, since you can spend the extra time on business development.

This is one of the main arguments, in fact, for raising your current prices. If you double your fees, for example, you may get half as many clients but you make the same amount of money. The extra time can be spent acquiring new work or completing those back-office tasks that never seem to get done (like annual employee reviews!).

4. Discounting your fees shows desperation.

Ever go on a date where the other person was trying too hard to impress you? The night probably didn’t last long. Clients, too, can sense when you are desperate. It will turn many of them away.

Those who aren’t immediately repulsed may try to use your desperation to drive further discounts and concessions from you. Worse though, you have lost client control before the work even began.

We’ve all had them: the demanding client who wants constant updates, thinks they know more about the law than we do and who tries to tell us how to do our job. Good luck getting them to listen to your advice on the best way to resolve their case. They are a headache and force us to question why we chose law as a profession.

Once a client realizes you are desperate for their work, they own you. They know they can push you around and make you jump through their hoops – and you won’t be able to fire them. You will work twice as hard and make half as much money working for them. The money isn’t worth your mental sanity.

5. If you quote a price/rate but then reduce it, it raises questions before the engagement starts.

If you could do the work for $XXX, then why did you initially quote more? Is it because you were trying to overcharge? Or are you not confident about yourself and how you will resolve the client’s issue? What really is the value of your services?

I used to do trials. Now, I do tribulations.

Clients hire lawyers because we are the “experts.” They expect us to be confident. If we show a lack of confidence in our pricing, the natural tendency of clients is to question what else we aren’t confident about. If a client doesn’t feel you are confident in being able to help them, they will not hire you.

Persistence. Pragmatism. Diplomacy. And Patience. Lots of patience. Exactly the kind of mediator you need to get your cases resolved.

Call 614.484.1200 or visit rgpalmerlaw.com.

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6. A discount now leads to the expectation of a discount in the future.

Retailers have trained us to shop for sales. They want us to feel that little hit of dopamine every time we see a sale sticker.5 They use it so much that sales are now expected. Remember when JCPenney tried to eliminate sales and instead offer lower prices across the board?6 People stopped shopping, revenue plummeted and the sales tags quickly came back.

Offering discounts on your services is a slippery slope. If you offer a discount once, the client will expect one the next time – you have now trained the client to focus on price and getting a “good deal.” If you don’t offer one the next time, that might be enough to send a deal-seeking client elsewhere.

7. Focus on adding value.

A friend of mine is an optician. He sells eyeglass frames to optometrists. Unfortunately, his business is struggling. One of his competitors is selling frames at a loss. The competitor is forcing my friend to constantly lower his prices. Eventually, my friend is going to get run out of business.

Don’t try to compete on price. No matter how much you discount your fees, there will always be someone willing to charge less. A price war is nothing more than a race to the bottom.

Instead, find ways to add extra or unique value to your services. If you do estate planning, you could offer lifetime annual check-ins to review whether their planning documents need updating. Or you could provide a concierge service by going to your clients’ homes rather than making them travel to your office.

I have an arrangement with an employment lawyer so that my clients get a complimentary 30-minute phone consultation with her (something she already offers new clients). I include this as part of my offer to prospective clients. This is additional value which benefits them and sets my services apart from other lawyers, and the employment

lawyer benefits from a source of new potential clients.

8. Discount only for your best clients.

The only time that a discount is appropriate is if it is unexpected and done on the invoice.7 Only offer it to your best clients for their loyalty or for referring you to others, and clearly indicate it as such on the invoice. This way the discount is a reward and incentive for future work. It is not a play for current work and avoids the issues above.

1 From https://www.epactnetwork.com/corp/blog/9-things-shouldnt-doemergency/ 2 No, just one kidney is enough. From https://www.scientificamerican.com/ article/how-can-you-live-without/. 3 Prices are fixed fees agreed to in advance, just like the cost of a new car or groceries at the store. Rates are hourly multipliers used when billing by the hour. 4 The pricing strategy of offering a more expensive product than competitors is known as price-quality signaling. From https://www.retently.com/blog/ product-pricing-satisfaction/ 5 Our brains are chemically programmed to respond to sales – the bigger the sale the better. From https://neurotracker.net/2016/12/18/shopping-makesfeel-high/. 6 To refresh your memory, from https://business.time.com/2012/05/17/whyjcpenneys-no-more-coupons-experiment-is-failing/. 7 I realize some lawyers offer discounts to non-profits or low-income clients. That is fine as long as you are doing it on your own terms and realize the client will probably expect a discount next time too.

Bradley Miller, Esq.

Miller Law, LLC brad@bradleymillerlaw.com