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The Premium Pricing Fallacy

2011 June 24
by John Wallbillich

This is Rule 2 in Zen and the Art of Legal Pricing. Like yesterday, one admission from the start: good legal services can be expensive and are often worth it.

I will try to define the “Premium Pricing Fallacy” in the form of an example. I have heard something like this from advisors to lawyers:

“Clients have no way of knowing what legal services are worth. If you charge a higher rate, it helps them value it more. They may not ask for this. But believe me: they need to pay more. You are just helping them get what they really want.”

They will sometimes put a luxury product into the mix, noting that Ferrari buyers are much happier paying a super-premium price. If revenge is a dish served cold, envy is a car driven slow to the local ice cream parlor on a summer night.

Over-paying for transportation because you can is one thing. Doing the same for legal services doesn’t make a GC envied. It may make her unemployed, however.

Ask any general counsel what they regret about using certain outside counsel over a 10 year period. It typically isn’t high-price work by top-shelf firms that sticks in the craw. But it may be using that same firm for routine contract work long after the big deal is done.

In the law, premium prices flow from scarce talent and collect around great results in major deals or disputes. That’s the key: premium prices don’t establish value, they follow it.

Larger law firms may have more people on board who justify premium prices. They may also have many who simply do not. Sorting this out takes up a lot of time for in-house counsel.

You buy a Ferrari once in a life (maybe). You don’t buy one every week, even with other people’s money.

Rock On!

Tomorrow, we have a corollary to the Premium Pricing Fallacy, it’s Rule 3: The Transparency Reality. (Now that guitar, that’s totally worth it.)

One Response Post a comment
  1. June 29, 2011

    Great post, especially the comment about continuing to use BigLaw for routine legal work long after the big deal is done. BigLaw has its place for truly complex deals, but business owners and executives should look for smaller, leaner, less costly firms for most legal work because most legal work is fairly routine in nature.

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