The single most important decision in evaluating a business is pricing power.

If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business’. – Warren Buffett

Much has been written recently about the ever changing market place for legal services and the role of pricing in that market.

For most customers in the wider market place, the price of a product by itself is not the key factor when a purchase is being considered. This is because most customers compare the entire offering, sometimes referred to as the “whole product” and do not simply make their purchase decision based solely on a product’s price.

In essence when a purchase situation arises price is one of several variables customers evaluate when they mentally assess a product’s overall value.

Value refers to the perception of benefits received for what someone must give up. Price often reflects an important part of what someone gives up, a customer’s perceived value of a product will be affected by a pricing decision. A clearer way to see this is to view value as a calculation:

Value = perceived benefits received
perceived price paid

For the buyer, the value of a product will change as perceived price paid and/or perceived benefits received change. But the price paid in a transaction is not only financial it can also involve other things that a buyer may be giving up. For example, in addition to paying money a customer may have to spend time learning to use a product, pay to have an old product removed and the opportunity cost to current operations of diverting resources to this project or incur other expenses.

Being able to place value on a product or service is not a simple matter. As mentioned earlier value is based on perception. The real cost of calling out an electrician to resolve an issue in your home may be broken down into a call out fee, labour and parts. The sum of this transaction may total £80 but value to the customer is far greater than the £80, so the tradesman may charge £120, maybe more dependent on circumstance.

Successful businesses maximise their profits by matching their pricing with the value customers put on their products or services. As a provider of the product or service the price is your financial reward for this provision.

Pricing for legal services is now more complex than ever. Clients prefer alternative fee and hybrid arrangements and they want to range of services, such as eBilling, in addition to legal advice to improve productivity and efficiency.

The net result is that law firms now need skilled pricing teams to ensure that they are competitive and still profitable. Pricing professionals need to possess excellent commercial acumen to devise pricing strategies that will resonate with clients, provide differentiation and align to the firm’s competencies.

Learn more about BigHand Matter Pricing tools.