Letting your client decide your price?

Michael CarabashIn his blog (“the [non] billable hour“), Matthew Homann (lawyer, mediator, blogger and entrepreneur) recently wrote a blog entitled “Let Your Clients Decide Your Price” (March 9, 2009). In that blog, Matthew challenged lawyers to let their clients set the price of the work they do – after it is done!

This is revolutionary, not only for the legal industry, but in virtually every industry I can think of. Matthew says he uses this pricing model for all of his consulting work. He even provides a sample invoice which he uses for his own clients. Clients decide, no questions asked! Matthew states that, even though his clients decide how much to pay, he requires payment and feedback within 21 days after clients receive the invoice.

Now I’ve been trying to think of where else this kind of billing alternative exists. Nothing comes to my mind immediately. Rather, as they taught me in business school and in the school of life, suppliers of goods and services set their prices beforehand. They do so in light of their own costs (the bottom), competitor costs (the middle), and any premium they can charge because of some kind of competitive advantage (the top). Prices are set so that clients can shop around as well to figure out what exactly is the market value of the thing they’re purchasing. So in certain industries, it’s clear that his recommended model may not work.

Now what about the potential disadvantages with Matthew’s model. I’m sure he knows them well. What if clients continue to take advantage of the service provider? What if clients don’t pay (hence, lawyers take retainers up front to help them ensured getting paid and having reserves for when future legal services are needed)? What if there is bickering at the end about the true value of the legal services provided? Is this going to get us any closer to determining what’s a fair billing model in the eyes of both the lawyer and the client?

Granted, Matthew’s model may make sense in certain industries where it’s relatively easy for the consumer to determine what the price is of the thing they’re purchasing. They can shop around, get a sense, and then make a judgment call. They can punish you by giving you less. They might even reward you by giving you more. Maybe it’s better for established clientelle who have no difficulty paying and who appreciate the value of your services. I’d be more comfortable doing something like what Matthew recommends in these limited circumstances. But I wouldn’t open up my entire practice to this billing model any time soon…

Remember that not everyone is at the same stage in their life. Some of us are just starting out our practices and will have some hard lessons to learn along the way. Some of us have decades worth of experience, a solid reputation, established clientele and a large referral base, etc. So I would take what Matthew says with a grain of salt before diving in too soon…

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