Key learnings from the last three years: Strategies for pricing complex projects
Welcome to this month's article of Let’s Be Frank, a monthly newsletter series hosted on LinkedIn and authored by our founder Digby. If you are interested in following along pop over to the Let’s Be Frank LinkedIn page here and hit the subscribe button to have these articles sent straight to your inbox.
Let’s Be Frank Mini-Series: Part 2
Welcome to the second article in my Let’s Be Frank mini-series on key learnings from the last three years. In the first part of this series, I shared five key takeaways about strategies to get firm buy-in when making the move away from hourly billing. This article will be about strategies for pricing complex projects.
I will start by providing you with a link to a video I produced for AltFee on this very subject..
When you are not pricing by the hour, wrapping your head around how to come up with up-front, fixed fee pricing for commercial litigation, M&A transactions or other complex unpredictable matters can feel challenging and uncertain. How can I possibly price these types of projects and not be wide open to “working for free”?
A lot of lawyers are more open to doing commodity-like work (more predictable), such as conveyancing or simple will preparation with fixed fees, but the thought of the unpredictable is too much to bear.
Here are some strategies I have learned over the past three years for pricing more complex and unpredictable work:
1. Patience in Scoping and Pricing
Be patient in pricing. Don't get to the price right away, but get to know what success looks like for your client. It will feel risky, as you will be spending time getting to know your prospective client and perhaps not be paid for that time.
Firstly, the risk is not as much as you might think. As you go through the conversation of “why are you doing this? What is most important to you?”, you will be building trust, which greatly improves the chance of ultimately landing the work. Secondly, you will get so much information on what the project will look like, which will help with scoping and therefore pricing.
2. Stage-based Pricing
I have found it to be very helpful to break off a piece of a long, more complex project, and price that part on its own. Pricing complex projects with a lot of factors that could go on for a long time, can be easier when you unbundle or break each phase out on its own.
As an example, consider the LOI phase of an M&A transaction. By taking a portion of a larger project, such as the LOI, and pricing it on its own, can be particularly good as you will be able to build your relationship with your client at an early stage.
Pick a price for the LOI phase that you and your client will both feel comfortable with (less risk with less scope); this will give you a good idea of what your client likes in terms of communication, and it will build trust. This is going to help you predict how the rest of the project will unfold.
3. Scope
It is important to do a good job in the planning phase. Always put boundaries around what your price includes, and ensure this is clearly communicated with your clients.
As an example, how many turns of the agreement are covered in the price. Is there a timeframe for completing a particular aspect? This is often what is required to keep the project on track in terms of what you expected.
4. Change of Scope
This can be very tricky as you are busy doing the work and don’t want anything to get in your way. Stopping and talking about money is not easy. As well, often the question of what is included in scope and what is not, can be a blurred line.
As a technique, I have found it is easiest if you raise the point as soon as you start to see matters shifting. I often say “I see that the project is not what we expected when we started, and this could affect our pricing discussions. I am okay right now, but just want to keep the conversation alive as we move through the project.” I then wait for when value is mostly being felt by the client to dive back into the pricing and what is a fair adjustment.
5. Systems
Don’t underemphasize the importance of having a system to price. This is a dynamic process that must constantly be improved through your learnings.
We use AltFee which has continuous learning built into the system.
The hidden benefit of having a system is it gives you so much confidence when you are speaking to your client about price. Both you and your client will feel like the price is not pulled from the air, but one truly based on the value to be delivered to your client.
6. Culture
Moving away from hourly billing requires a client focused approach to collaborative pricing, where price is heavily determined by the value received by clients. Shifting away from believing you should be paid for your time is a fundamental shift. (Have a look at my first mini-series article for more on this topic.)
On the other hand, it is so liberating not to have your financial contribution be solely determined by more hours. Wouldn’t it be nice to earn more money by building great systems or say, using AI (for the forward thinking people)?
Stay tuned for my next mini-series post about strategies for tracking firm success!
Until next time,
