Impact Pricing Podcast

Ep185: How Should a Law Firm Approach Pricing Strategy with John Chisholm

 

John Chisholm was a US lawyer. For 15 years, he’s been in law firms, using value-based pricing, and now subscription pricing. John swims in the ocean every morning with his Speedo around his neck.

Pricing for law firms or even major consultancy firms is not easy. Price your final client contracts too high, and you’ll lose some of your most high-value clients. Price them too low, and you’ll be forced to work too few staff to the bone to cut costs.

In this episode, John shares how law firm should approach their pricing strategy.

Why you have to check out today’s podcast:

  • Discover how to create a pricing revenue model that funds a thriving firm while generating real value for clients
  • Learn how to make your law firm and consultancy clients understand the value of your service and the risks they are avoiding by hiring you compared to your competitors by communicating the value you provide
  • Discover why a pricing expert is essential to the profitability of any law firm

          

“Just don’t price your own work.”

John Chisholm

           

Topics Covered:

01:06 – How John got into pricing: His late father’s story in relation to legal service fees

03:06 – Doing timesheet free billing as a law firm in the 1970s to ‘80s

05:25 – The old law business model of billing by the hour

06:38 – How things led him to his aha moment in relation to the practice of pricing

10:37 – Changing the mindset around pricing: Possible or not?

15:48 – “The true indication of a really good professional is not so much the answers they give; it’s the questions they ask”

19:24 – Having a value conversation around $500 vs. $270’s worth

22:15 – John’s pricing advice

23:31 – Pricing table topics: “Sunk costs don’t matter to pricing or any business decision”

 

Key Takeaways: 

“Now it’s very, very ingrained – the whole profession, I’m afraid. There has been a lot of movement, but they’ve been mainly in smaller, innovative firms. But the large firms, despite what they say, when you peel back the onion, the measurements, their rewards, their whole internal systems still work around time, and it’s hard to change, and they’re very successful.” – John Chisholm

“I know I’ll get into trouble for saying this, but lawyers buying and selling to each other is not a great recipe for innovation or change or taking risk.” – John Chisholm

“Those that perceive they have the most to lose will be the last to change, and that will be the big end of town worldwide.” – John Chisholm

“I try and get the lawyers that I work with my clients to stop thinking like lawyers, because often, the solution is not a legal solution; it really isn’t, or the objectives are not a legal solution. It may be that what we’re going to do has legal input, and that’s the skills that the lawyers have that someone else doesn’t have. But it’s turning the conversation on its head. It’s asking the right questions. And I think the true indication of a really good professional is not so much the answers they give; it’s the questions they ask.” – John Chisholm

“I work more with my client lawyers focusing on what additional benefits can you give to clients, many of which don’t cost anything to the law firm but add value to the client; the price just follows. I think also, if you can focus on increasing the client’s profit, our profit will follow as a profession.” – John Chisholm

“I think even though it might be for short term profitability, there’s just so many good lawyers that just do underestimate the value that they’re providing to their clients, and that’s their fault, not their client’s fault.” – John Chisholm

 

People / Resources Mentioned:

Connect with John Chisholm:

Connect with Mark Stiving:   

  

Full Interview Transcript

(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)

John Chisholm

Just don’t price your own work. 

[Intro]

Mark Stiving

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the legal relationship between them. I’m Mark Stiving and our guest today is John Chisholm. Here are three things you’d want to know about John before we start.

He is or at least was a lawyer, but at least he’s an Australian lawyer, not a US lawyer; for 15 years, he’s been in law firms, using value-based pricing, and now subscription pricing; and oh my God, I’m embarrassed to tell you this — he swims in the ocean every morning with his Speedo around his neck.

Welcome, John. 

John Chisholm

I did that once for the winter solstice two days ago, but I do swim almost every morning. I live on the coast, so I’m very lucky to do that.

Thanks, Mark. Great to join you. 

Mark Stiving

It’s going to be fun. So how did you get into pricing? How did a lawyer get into pricing? 

John Chisholm

When I joined the law, I joined my father and grandfather’s law firm, and we never called pricing in those days. But I remember as a young article clerk, sort of equivalent to an apprentice, my father would take the article clerks – he was senior partner at the time – into a room and had a whole bunch of files, and he would literally skim through the files, pick them up, some people might say weigh them, and then he’d ring the client and say, “Oh hi, Mrs. Smith, it’s Don Chisholm here. We’re finished. You matter. How do you think we went?” And if they said, “Terrific, did a great job,” he would say, “Well, we’ve put our best and brightest on the case. I’d be sitting down. The fee is $100 or $500 or what have you…” and then he would send out a bill. He would ring a client and say, “Hi, Mrs. Smith, Don Chisholm here. I finished the matter here. How do you think we went?” And sometimes the client would say, “I’m still waiting for your son to return my phone call or what have you…” So, in those circumstances where normal fee would be this and we charge you that.

Now, the point with that – and my father passed away just two years ago at 92 years of age, he was still a practicing lawyer – he never, ever sent out a bill to a client without ringing them first. He just called it common sense. Almost until the day he died, he would say, “What? People are paying you? Lawyers are paying you to tell them that?” So, it wasn’t what we made in value pricing, but he never, ever had a client that always agreed with the fee, so the bill was another surprise.

Mark Stiving

Hang on, one second. If you think about that, that was actually quite brilliant, because what he’s doing is value-based pricing from the perspective that said, “How much value do I think you got out of this?” And he’s setting a price from after the fact as opposed to before the fact. 

John Chisholm

I had a cost dispute or fee dispute. If there was any discussion, it was on the phone, but when he sent out the bill and he was assured that he’s going to get paid, he would call it common courtesy, common sense. But when I became a partner in a law firm in the 1980s as a young tech sort of partner, and because all the other law firms around the world, mainly from US, were starting to bill by time, we introduced timesheets. So, I can remember partners meeting and my father and the other senior partner saying, “Why are we getting people to record time?” And we said, “Oh, it’s just so we could find out the lazy people in the firm, father, for no other reason.” “So, we’re not going to build clients by time?” “No, no, no.” That was the second biggest lie I told my father, I think, in my life. But within a few weeks, we started. 

Mark Stiving

I’m confused, because this is the first time I’ve ever heard this. As a law firm, you were actually doing I’m going to call it timesheet free billing, which you could think of as almost value-based billing, and then you went into timesheets? 

John Chisholm

Yeah, absolutely. There was a scale of costs, which is some, it’s almost sort of a Charles Dickens type scale of costs. We’d sit down and go through a file and how many folios and how many phone attendants and there was a regulated amount for each of those things, so there was that. And in other times, my father would agree; it would be $100 for a will or whatever would agree upfront. But when he hadn’t agreed upfront, he’d agree after the event, not before he sent out the bill. But it was completely time free. And almost every law firm until the late 1970s, 1980s here in Australia was time free. We didn’t record time.

Mark Stiving

Wow. Okay. So, then I’m sure you started billing by time, billing by the hour. 

John Chisholm

We did, and that was a hard transition for many, particularly the older lawyers in the firm, to start recording time. And no one, as you know, it’s inaccurate anyway, but we tried, we started billing, but it was because the other larger firms were doing it, and I’m not saying it wasn’t– The two firms that I was partner – managing partner and CEO – were terrific firms, spectacularly successful financially and otherwise. So, I think I became managing partner because quite frankly, I’m not always shy at filling up timesheets so I could make everyone else in the firm fill their timesheets when I became managing partner and didn’t have anything to do. So that’s how it started.

So, all my career as a practicing lawyer or CEO or managing partner was built around what I call the old law business model, leveraging people by time, by hourly rate. We didn’t have prices. We had the billable hour. We had fees or costs or what have you.

And it was only when I left law at the end of 2004 and drove around Australia with my wife for five months, and then thought, “what am I going to do next in my career?” I fell into consulting, and even that, I had no idea how I was going to bill or price my services. I certainly wasn’t going to start recording time after all the years, not recording time as a CEO and managing partner. And I started doing some projects for some friends who are managing partners of other firms, and they said, “How are you going to price your service?” “I don’t know.” And what I did, I know it sounds really naïve and bizarre, and my accountant didn’t like it at the time, I said, “Look, Mark, I’ll just do this project for you and you see what it’s worth at the end of day and pay me what you think it’s worth.” And literally, I did that at my first two or three projects as a consultant. Actually, I was getting paid more than what I would have if pressed priced my own services at. So, I thought, that’s interesting. Either they feel sorry for me or perhaps thought I was doing a better job or providing more value than what I thought.

And then from there, that triggered my interest in – I don’t know if we Googled, probably Microsoft Explorer, Internet Explorer at the time – looked up pricing.

Fortuitously, the end of 2005 or mid-2005, I went to a conference in Sydney, Australia, and there was a guy, an accountant called Paul O’Byrne who sadly passed away, and he was talking about value pricing. He was an accountant from Cossack in England, north of London, and it was my aha moment. It was like, calm down; he just talked about his small accounting practice, how they had ditched not just the billable hour, but timesheets. And I’ve never heard the concepts in pricing, let alone value pricing, Mark.

Paul was a member of Ron Baker’s VeraSage Institute and I just followed around Sydney for two days. He was in Sydney, asking all these stupid questions and what have you. And I think, to get rid of me, he said, “Look, next time you’re in London, come and visit me.” And within two months, I jumped on a plane, went to London, spent two weeks with Paul, he introduced me to how they did pricing at the time. His clients and I was just amazed, and I thought, if a pretty average lawyer like me could get it, this is going to revolutionize the legal profession and this is a much better way of running our practice and practicing our craft.

So, I brought Paul out to Australia and we worked with some clients and did presentations to law firms back in 2006-2007. And guess what? Nothing happened. 

Mark Stiving

That’s 15 years ago, so by now, all of Australia must be doing value-based pricing, right? All of the legal firms. 

John Chisholm

No. As our mutual pricing friend Ron Baker would say, it’s hard to tell a room full of millionaires that their business model sucks. I wish in 2022, I was not still talking about moving law firms or other professional firms to, but certainly law firms away from billing by time. But now it’s very, very ingrained – the whole profession, I’m afraid. There has been a lot of movement, but they’ve been mainly in smaller, innovative firms. But the large firms, despite what they say, when you peel back the onion, the measurements, their rewards, their whole internal systems still work around time, and it’s hard to change, and they’re very successful. 

Mark Stiving

Look, let’s talk about that for a second. I want to use some analogies and you tell me what’s going on in my mind, because I think lawyers’ clients think the same way I do in some respects.

So, I had a bookkeeper and my bookkeeper was charging me $500 a month and I felt like I was getting ripped off. And she ended up firing me because I wasn’t giving her enough money. But I had to find another bookkeeper, she’d charge me by the hour, and I probably pay her on average 275 bucks a month. And so, I was right; I was getting ripped off, maybe. But the whole time I’m paying this flat rate, let’s call it the value-based fee or subscription fee, in my mind, it was, I don’t know, as if I’m getting cheated or not. So, what do you think about lawyers’ clients? Are they thinking the same thing?

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John Chisholm

Yeah. I think we did a great sell job as a profession. Moving to the billing by time didn’t come from the clients out there; it was the profession. Introduced it to clients, I would say, therefore we can take it away from clients, but that’s another story. I think we did a good job. You only pay for the work on the time we’re spending them on something. So, it’s hard to change that mindset around, I think, at least in a legal profession.

At the top end of town, which is where the large firms, the global law firms are, when you think of it, Mark, most of their clients are lawyers themselves. And I know I’ll get into trouble for saying this, but lawyers buying and selling to each other is not a great recipe for innovation or change or taking risk. So, they’re in-house lawyers and they learned their trade. They may have moved out of private law firms then made into in-house roles. But that’s what they knew; they knew the billable hours. Now, they may complain about bill shock and how high their rates are and whatever, but it’s the system they know. So, there hasn’t been at the big end of town really a burning platform to change anyway, and the legal profession, unfortunately, it’s changed to some degree now. We looked at the larger firms.

You know, when I was running a mid-tier law firm, we’d look at some of the bigger firms and go, “Wow, we’ve got to do what they’re doing. If they changed to billing by time or something, it must be the right thing to do.” And the in-house counsel is often not the true economic buyer. So, the most successful law firms that I’ve worked with around the world have probably been ones where their clients are private individuals or SMEs, small businesses, medium-sized businesses, an economic buyer. It makes sense most of them would prefer a fixed price or a fixed scope of work. It’s slowly changing; very, very slowly changing. But I think those that perceive they have the most to lose will be the last to change, and that will be the big end of town worldwide.

So, there are some fantastic, really innovative, small and mid-tier lawyers that are doing not just great pricing, but as you know, once you stop billing by time and recording time, it just opens up a whole new world of creativity, not just for your pricing, but for how you solve, how you deal your relationship with your clients. It’s really hard to explain that – even I’ve been doing this for 15 years – to lawyers when they have no experience. You’ve almost got to experience before you see the benefits, and a lot just went junk while one takes a risk.

Mark Stiving

So, I want to put myself in the shoes of the buyer again and give you a different example and have you talk to me about how you teach lawyers about this. And the issue is I wanted to get my car fixed, and of course, there’s a sign; it says “75 bucks an hour to work on your car”, and nobody knows what’s wrong with my car so it’s going to be a while before they get it fixed. But when I go to check out, there was a sign on the counter that said I could get a new battery replace for $149. Now, that wasn’t by the hour; that was, “Hey, I’m going to do this project. It’s 149 bucks. You want this project or not?” And so, the difference between those two is the certainty of the amount of work that needs to be done. How do you teach lawyers if they’re not certain or if they are certain of the work that needs done? 

John Chisholm

Well, I think firstly, you have to have a value conversation. Billing by time, I think, and hopefully you agree with this, if I’ve got my lawnmower man or tradesmen or what have you, I could follow him around the house or follow him around the yard to see whether he’s actually doing work or not. So that’s the labor arbitrage; you can see that. I think with professionals where hopefully, what the benefit of having a professional is they think in time, their knowledge, their cerebral, what’s in their head, that sort of stuff, and that’s hard. It’s not tangible. You can’t tell what I’m really thinking when I’m really, you know, you could see whether I’m drafting a will or sitting in court; I understand that, but I think that’s just the basic stuff.

I try and educate professionals that really what they’re selling is not that tangible stuff that anyone can do. Anyone can do that. It’s not even the drafting of the will. It’s thinking about what terms, thinking about asking the right questions – we call it the value conversation – and that’s hard to do. I, as a practicing lawyer, if a client came in, we’re trying to do the work and we had this what we call taking instructions, and you didn’t have to scope it because there was no incentive, really, provided the client was prepared to pay me my hourly rate and how long it took me; we would just do things. But I think if you can sit down, and they’re not even a legal question that you’re asking.

So, I try and get the lawyers that I work with my clients to stop thinking like lawyers, because often, the solution is not a legal solution; it really isn’t, or the objectives are not a legal solution. It may be that what we’re going to do has legal input, and that’s the skills that the lawyers have that someone else doesn’t have. But it’s turning the conversation on its head. It’s asking the right questions. And I think the true indication of a really good professional is not so much the answers they give; it’s the questions they ask. So, I spend most of my time, I think, with lawyers. I get them to understand much better the value they’re providing to their client or not providing, and only going to do that by sitting down and having a conversation. And it really is a conversation with a client before him. 

Mark Stiving

Yeah. So, I love the idea of value conversations; I write about it in my newest book. But to me– this one is going to be interesting for you, and I’m going to go back to the bookkeeper story I told at the beginning, where I felt like I was getting cheated.

John Chisholm

Yeah.

Mark Stiving

So now, imagine that the first bookkeeper comes in and she says, “What problem are you trying to solve? What’s that worth to you?” And she realizes that she’s going to charge me 500 bucks. Maybe she’s going to charge me a thousand bucks. And I think, you know, I could find someone to do that less. How do we handle that in a value conversation? 

John Chisholm

Well, I think you can give options to clients, and I know you’re a big believer in options. And most of the time, I can maybe do something for 270 bucks instead of 500 bucks, but it won’t be the same benefits that you will get if you’re paying me $500. Also, and I give it, and many of my client law firms do it, they give a service or price guarantee. Look, Mark, if you don’t think you’ve got value out of the $500, talk to me about it and see what we agreed to do. And if you haven’t got the value, let’s have a discussion and maybe the price will be different. I’m prepared to back myself because I believe you’ll get $500 worth, but at the end of the day, value is subjective; it’s in the eye of the beholder. And if you think you haven’t got it, tell me why. Hopefully, I’ll learn from that and we move on. And I think giving that service or price guarantee together with trying to work out some options. And this is not NBA stuff, but I just have it simple.

Value or perceived value, whether it’s in a law firm context or just everyday life context is no more than the benefits you get or perceived benefits you get over the price you pay. And value can be increased by decreasing the price, get better value, the benefits stay the same, or I can increase the benefits and maybe increase the price or the price stays the same and the value increases. And I work more with my client lawyers focusing on what additional benefits can you give to clients, many of which don’t cost anything to the law firm but add value to the client; the price just follows. A client has to make a profit out of using our services. And I think also, if you can focus on increasing the client’s profit, our profit will follow as a profession. 

Mark Stiving

And I think it’s the way pricing people should be thinking all the time. How do we increase the profit of our clients? How do we increase the profit of our customers?

John, we’re running out of time. I still have two more things I need to do with you. First one is the typical last question — what’s the one piece of pricing advice you would give our listeners that you think could have a big impact on their business? 

John Chisholm

Just don’t price your own work. And I know that’s easy to say, and I work with sole practitioners who, well the, who do I go and talk to sometimes. I act as a pricing or value counsel for them, but I work with some firms where they have their personal assistant or their secretary or their spouse who they talk to before they go and price any work. And I think if you talk to someone about price – and not only price comes up, but it’s the scope, right? Can you offer options? – I think it invariably increases the price, plus it gives the professional confidence, much more confidence to go in and have a discussion with clients. So, if you did nothing else, just don’t price your own work. 

Mark Stiving

I actually love that. And one of my favorite things to do is when my pricing friends call me to ask for pricing advice. I just think that it is so much fun, for exactly that reason.

John, one more thing, and you actually haven’t heard me do this yet in the podcast because we haven’t released any of them or we’ve done this before, but we’re going to play a little game. It is called pricing table topics. If you’ve ever been to Toastmasters or heard of Toastmasters, table topics is this exercise they do where we ask you a question and you have to speak on it for 1 to 2 minutes. That’s your goal. And I’ve made a nice new deck of cards called the Impact Pricing cards, and each one of these cards has a saying on it. I’m going to read to you the saying and you get to talk for 1 to 2 minutes, and all I can say – good luck. 

John Chisholm

I don’t think I signed up for this. Alright, let’s go. 

Mark Stiving

Let’s try and see what happens. It happens to be the three hearts. “Sunk costs don’t matter to pricing or any business decision.” 1 to 2 minutes. 

John Chisholm

Yep. From a client’s perspective, it doesn’t. I think the cost should follow the price. Most law firms at least already have sunk costs. And of course, you’ve got to price more than what the cost is. But working out profitability of client or profitability of matter, I’ve moved so far away from that. You look at the profitability of the lifetime of your customer or how long your customer is. We used to pretend in law firm context that we could make money out of every 6 minutes; it’s absolute bs. And clients don’t care about our costs; they really don’t. I don’t care about costs when I’m talking to some other provider. So, we just got to get over that cost there. We know what the cost is of running a law firm to integrate; all firms are fantastic at that. I just don’t know the price or the value to the customer. 

Mark Stiving

Alright. You made it to a full minute. Nice job, John. And overall, I love the answers, so excellent. How did that feel? Was that painful? 

John Chisholm

It was good. It makes you think on the spot. That’s great. I love your work. That’s great, Mark, introducing that. 

Mark Stiving

John, thank you so much for your time today. If anybody wants to contact you, how can they do that? 

John Chisholm

You can contact me john@chisconsult.com or www.chisconsult.com; it’s my website. And yep, happy pricing. But I have to say pricing at least in the law firm context, moving rates, the billable hour, and even time recording is just a thin edge of the wedge. Once you do that, it’s just like taking up the straight check, and I’ve seen it with so many good lawyers. I think even though it might be for short term profitability, Mark, there’s just so many good lawyers that just do underestimate the value that they’re providing to their clients, and that’s their fault, not their client’s fault. 

Mark Stiving

Yeah. And for a law firm to move from hour to value-based pricing, they actually have to think about the value to the customer. Wow. Go figure. 

John Chisholm

Yep. Interesting, isn’t it? We’ll get there one day. 

Mark Stiving

Alright. Episode 185 is all done. Thank you so much for listening.

If you enjoyed this, would you please leave us a rating and a review? And if you like the podcast, your pricing colleagues probably will too, so please shout it, share it, tell everyone.

And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me: mark@impactpricing.com.  

Now, go make an impact.

Tags: Accelerate Your Subscription Business, ask a pricing expert, pricing metrics, pricing strategy

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