Pricing and Packaging: Value-Based Approaches to Increase Profitability

Law firms have a great opportunity to implement strategic pricing best practices, transforming business models and practices internally, while breaking through into new markets and putting their firm in a different league of profitability.

However, pricing is not just the act of putting a cost on a product, service or a professional’s rate. It can be viewed as the central point of an organization. It’s a business function that binds the firm together through best practices, innovation and creativity.

Packaging, a practice of strategic pricing, can transform the way we deliver legal services. It can be a successful go-to-market strategy that involves frameworks foundational on clients’ perception of value, productization of legal services, targeted delivery of packages by value proposition, commercial monetization of the offering to enhance profitability, and the development of technological infrastructure to sustain the strategy and drive continuous innovation.

In the competitive world of legal services, law firms are continually challenged to balance client satisfaction with profitability. Traditional pricing models based on the billable hour are internally focused, have become foundational to how law firms operate and measure productivity. However, they often fail to adequately address the varying needs and budgets of diverse client groups. By leveraging willingness to pay (WTP) analysis, segmenting clients by unique needs and value perceptions and thoughtfully packaging services, firms can create tailored solutions that appeal to different market segments and maximize revenue potential and profitability.

Willingness to Pay (WTP): The Foundation of Pricing Strategy

Willingness to pay is the maximum price a client is prepared to pay for a service based on its perceived value. In legal services, value is often linked to factors such as expertise, outcomes, convenience and urgency. Clients may place a higher WTP on specialized services, such as intellectual property litigation, compared to commoditized services like drafting a standard employment contract. A business facing a lawsuit may have a higher WTP than one seeking routine compliance advice, as the stakes are inherently different. Smaller businesses or individual clients may have a lower WTP compared to large corporations with significant legal budgets.

In a law firm, WTP is established by triangulation, involving several methods such as client surveys, historical data analysis and competitive benchmarking.

Client surveys help gather insights into what clients value most and their price expectations. Upon asking respondents to evaluate a series of options by valued services, we can force trade-offs, providing more precise insights into client preferences and the relative importance of different legal services or price points.

The first step is to identify key legal services or pricing elements you wish to analyze. Then organize these into small groups. Each should include three to five options, representing different combinations of services and price points. Table 1A contains an example of three groups.

Table 1A

Group 1	Group 2	Group 3
Hourly rate of $650/hour.	Retainer/subscription fee of $5,000/month.	Expedited service add-on for $1500.
Hourly rate of $950/hour.	Contingency fee of 30%.	Regular service at standard rates.
Fixed fee of $2,500 for document/compliance review.	Fixed fee of $100,000 for full-case litigation.	Targeted packaged services across multiple areas of law (e.g. M&A, litigation, general counsel).

Next, conduct a survey by sharing these sets with potential or existing clients. Ask them to select the most and least appealing option in each group.

Analyzing the Data

Using basic statistical methods, analyze the responses to calculate utility scores for each attribute. Utility scores indicate the relative importance or appeal of each option. By plotting these scores, you can identify the price point or service combination where WTP peaks and establish features or attributes that are most (or least) valued by clients.

This could guide you to determine optimal pricing, prioritize service offerings, segment clients based on preference and refine existing or develop new alternative fee arrangements.

For instance: If $650/hour receives a high utility score while $950/hour scores much lower, it signals that clients are resistant to higher hourly rates unless paired with premium services or outcomes. Clients may place a higher value on bundled services (e.g., comprehensive case management) than individual offerings, suggesting an opportunity to package services for higher perceived value. Upon assessing the data, you may find:

• Clients with smaller budgets prefer flat fees for compliance reviews. Even $650/hour seems a high price point.
• For clients in need of intellectual property litigation, $950/hour is not an issue, and they may be willing to pay a 30% premium (contingency fee) on a successful outcome.
• Larger corporate clients value targeted packages across multiple areas of law.
• Expedited contract review has a high appeal among businesses with time-sensitive operations.

A review of historical data to identify client spend patterns on types of matters could offer another data point into WTP. However, while historical data analysis can tell us what the client has spent on a type of matter, it cannot verify that a certain client segment could have paid us more for the service or whether we could have acquired more clients at a different price. Historical data analysis must be used in combination with client surveys and competitive benchmarking to establish WTP, which can help broaden the market while optimizing pricing and increasing profitability.

Segmenting Clients: Understanding Diverse Needs

Legal clients are far from homogeneous. Effective segmentation considers factors such as industry, level of complexity, size of the client and the perceived importance of the matter.

Based on data collected from the survey, one can develop pricing tiers tailored to client segments, enabling firms to create client-centric pricing models while meeting diverse needs.

An example map of client segments aligning to client needs, value drivers and WTP can be found in Table 2A. This can be developed using data gathered from the survey.

Table 2A

	Startups and Small Businesses	Mid-Sized Companies	Large Corporations	Individual Clients
Needs	Affordable solutions for entity formation, basic contracts and compliance.	Ongoing legal counsel, employment law support and moderate-risk litigation.	Specialized legal expertise, high-stakes litigation and complex transactional work.	Personal legal matters such as estate planning, family law or small claims.
Value Drivers	Cost-effectiveness, simplicity and clear guidance.	Efficient processes, reliability and accessible expertise.	Deep expertise, bespoke solutions and outcome-oriented services.	Empathy, clarity and affordability.
WTP	Typically lower, with an emphasis on budget predictability.	Moderate, with a focus on balancing quality and cost.	High, as they often prioritize results over costs.	Varies widely based on the urgency and emotional weight of the issue.

 

Packaging Services to Meet Segment Needs

Once client segments are clearly defined, you can develop service packages tailored to each segment. Packaging not only simplifies the decision-making process for clients but also creates opportunities for firms to upsell and cross-sell complementary services.

Table 3A

Example: For Startups and Small Businesses

Key Attributes/Features	Basic	Premium	Comprehensive
Entity formation
Business registration
One (1) standard contract
Trademark registration
Two (2) hours of legal consultation
Ongoing compliance monitoring
Suite of customized contracts

For Large Corporations

Packages for large corporations can be tailored differently. Here the choice is often between hourly rate or a targeted fixed fee package for a certain practice/attorney class or packages by level of complexity. This could include for example:

M&A Package (By Level of Complexity):

If the law firm has a large amount of historical data in a certain niche, then it can rank its historical matters by level of complexity and use the intelligence to predict pricing for new matters. Intelligence could be used to develop client centric packages as per below.

Table 3B

Key Factors	Level 1	Level 2	Level 3
Deal Structuring and Negotiation	One transition services agreement.   Minimal discussions or revisions.   No issues related to licensing or business contracts.	More than one transition services agreement.   Moderate discussions or revisions.   Some issues related to IP and licensing, business contracts.	Multiple transition services agreement.   Significant discussions or revisions.   Significant issues related to IP and licensing, business contracts.
Due Diligence	Red flag report.	Deep dive.	Deep dive with multiple practice areas.
Tax Structuring	None.	Some tax implications.	Multiple options for tax savings.
Financing	None.	Client raises financing through debt/equity.	Client to sell another unit to raise financing.
Regulatory Needs	Minimal regulatory.	Some: involves mining and construction.	Foreign transaction involving CFIUS.

Aligning Pricing with Value

When designing service packages, it’s essential to align the pricing strategy with the value perceived by each client segment. Here’s how this can be achieved.

1. Anchor Pricing With WTP Data: Use WTP analysis to set the baseline for package prices, ensuring they reflect the value clients expect to receive.
2. Offer Tiers to Maximize Reach: Create different versions of each package (basic, standard, premium) to cater to varying budget levels within a segment.
3. Highlight ROI for Clients: Emphasize the benefits clients gain from a service, such as risk reduction, cost savings or increased efficiency, to justify pricing.
4. Incorporate Add-Ons and Customization: Allow clients to enhance their packages with additional services, creating opportunities for increased revenue while offering greater flexibility.

Overcoming Pitfalls and Challenges

As you embark on this journey, you will encounter resistance to change. Trying to convince attorneys to adjust methods that have worked for them may not lead to desired results. Each practice area has unique needs that often require different pricing solutions. As such, a one-size fits all approach will likely fail in a law firm, given the diverse political centers focus on building alliances with attorneys that genuinely see the need for innovation in their practice. Let them advocate your work. Sell your strategy as an option and not as a substitute. This may get many of the resistors to help you. After all, which attorney doesn’t like providing options to their clients?

Partners that have built their book of business over time, have painstakingly developed trust with their clients and have adapted to a practice management style that has been rewarding for them over the years. Having them change the way they practice can be an emotive issue and resistance to change can be strong. As such, interview a large number of attorneys to understand their pain points, empathize with their issues, build a relationship and work with them to see how your approach could address their concerns. Gather information to help build your framework with key attributes/features you would like to evaluate in the market through surveys.

The common stereotype around fixed prices in law firms is that they may not be profitably managed. As such, WTP should be compared with prices at break-even levels, current profit margin and higher profit margin levels. The results of WTP can be surprising to many. Quite often clients are willing to pay more for a service on a fixed fee basis than they would pay on an hourly basis.

While the approach to strategic pricing and packaging is grounded on methodology, it’s essential to be flexible in the execution. The search for a perfect solution should not come in the way of progress. Incremental gains each package and each practice area at a time could catapult into something much bigger down the road.