Jay Shepherd hasn’t billed an hour since September 2006.  In fact, no one at the Shepherd Law Group has.  You read that right–the entire firm hasn’t billed an hour for 3 years.  For those of you who don’t know Jay or haven’t read his blog, The Client Revolution, you’ve missed out.  Shepherd Law Group is an employment law firm that will not bill by the hour.  Like me, Jay is frequently asked how he sets the price he charges for a matter.  Darn it if he didn’t just go and pull back the curtain on the secret.  In his post "How do you set your prices?" Jay reveals the answer.  The fact that he does so with such humor only makes the read more compelling.

Here is the magic formula:

"How do you set your prices?"

I’ll tell you. (Just promise not to tell anyone else.)

* I analyze the client.
* I assess the importance of the situation.
* I assess the urgency of the situation.
* I pay attention to what my competitors charge.
* I consider the relative values of the different possible outcomes.
* I figure out how hard it would be for the client to get better service elsewhere.
* I determine how important my firm’s expertise is to the likelihood of a successful outcome (in other words, is this going to be easier because of our particular skills, or could any trained monkey use the Interwebs to find the answers?)
* I consider what we’ve charged other clients in the past for similar work
* I consider whether those charges were heavy or light in retrospect
* I consider the likelihood of getting more work from this client
* I assess how much work we’ve done for this client already
* I wonder how important getting this particular job is to our firm (if it isn’t, I might raise the price)
* I decide whether to do a single price for the whole gig, or whether (and how) to break up the job into minigigs with separate prices
* and then I say, "This is our price."

Simple, right? No, it’s not. Price things too high and you don’t get the work. Price things too low and you get work you don’t want, or clients you don’t want, or you just don’t make enough money.

Ask a CEO how his or her company prices their product, and I suspect the answer would not be dissimilar.  There is never magic in pricing.  There are two options–you are guaranteed a profit and the risk if uncertainty is borne by the client while you have no incentive to be efficient, or you are guaranteed nothing and your ability to earn a profit (and I chose the word "earn" because it is, under this scenario) is based on your ability to structure your representation to be effective and efficient, and thus earn a profit, at that price point.  I suspect that Jay has missed the mark a time or two and had matters that were losers.  We have.  But you  learn and move on.  We aren’t guaranteed a profit and the uncertainty of the world sometimes overwhelms even the best estimated price. 

To those who see what Valorem does and what Shepherd Law Group does as unusual, you’re right.  And speaking at least for Valorem, we believe that sellers of legal services do not have profit rights that sellers of other goods and services don’t.  We also believe that aligning our economic success with our client’s economic interests will, over the long run, strengthen and deepen our client relationships and be more profitable for the firm.

Great post Jay.