Episode Notes

We’re celebrating 400 episodes of The Lawyerist Podcast! We’ve come a long way since starting in January 2015. Thank you for being a listener! 

In this episode, Stephanie speaks with Ron Baker about eliminating the billable hour and time sheets. According to Ron, the only place tracking time matters is in prison. He believes it’s time for law firms to think about the value they provide to their clients instead of how much they charge per hour. Ron explains ways to shift your thinking and suggests different approaches when considering a client-first pricing model.

Links from the show:

Implementing Value Pricing

 

  • 08:58. History of the billable hour
  • 11:34. Stop being obsessed with cost
  • 14:27. How do we measure value?
  • 20:36. Providing pricing options
  • 28:37. How to set a fixed price

Transcript

Announcer:

Welcome to The Lawyerist Podcast, a series of discussions with entrepreneurs and innovators about building a successful law practice in today’s challenging and constantly changing legal market. Lawyerist supports attorneys, building client-centered, and future-oriented small law firms through community, content, and coaching both online and through the Lawyerist Lab. And now from the team that brought you The Small Firm Roadmap and your podcast hosts

 

Jennifer Whigham (00:35):

Hi, I’m Jennifer Whigham

 

Stephanie Everett (00:36):

And I’m Stephanie Everett. And this is episode 400 of The Lawyerist Podcast! Part of the Legal Talk Network. Today, I’m speaking with Ron Baker about how to kill the billable hour.

 

Jennifer Whigham (00:50):

Today’s 400th podcast is brought to you by Albatross Legal Workspaces, Postali and Posh Virtual Receptionists.

 We wouldn’t have been able to do the show with author support. So stay tuned. We’ll tell you a little bit more about them later on.

 

Jennifer Whigham (01:03):

Sorry. I interrupted your introduction with a woo for our 400, but it felt like a woo moment.

 

Stephanie Everett (01:09):

Yeah. It’s worth celebrating. I mean, it’s impressive that the show has reached episode 400 and is actually as popular as ever, which really makes me proud.

 

Jennifer Whigham (01:19):

I know, but so many episodes, how many years is that? 400? Like how, when, what year I’m asking you this, like, I don’t know because it’s a podcast style interview, but what year did the podcast first start?

 

Stephanie Everett (01:32):

I feel like I should know that.

 

Jennifer Whigham (01:34):

I know, but I think it, it predates both you and me in the company. So it would make sense that it’s not like at the top of our mind, but it was just Sam and Aaron co-founders at Lawyerist at the time. Right?

 

Stephanie Everett (01:47):

Yeah. I think over seven years ago, I’m sure somebody can figure that out, but

 

Jennifer Whigham (01:51):

It’s could somebody tell us yes <laugh>

 

Stephanie Everett (01:53):

I would’ve had it at the ready if I knew you been asked me that.

 

Jennifer Whigham (01:55):

I surprised you. I know, I surprised you, but that’s what keep it fresh and fun. But in this episode, what I think is particularly interesting is when I first started at Lawyerist, one of the very first things you said to me, and this is true was something about the billable hour and it was not something I was super familiar with at the time. You know, I kind of knew it because my mom works in the law, but it wasn’t something at the top of my mind. And even then now this is almost three or four years ago, you were really passionate about it. How did you become passionate about the billable hour? Cause you started in traditional law billing, right?

 

Stephanie Everett (02:28):

Yeah. I feel like we should qualify that I’m passionate about killing it.

 

Jennifer Whigham (02:33):

Yes. I’m sorry. No, not passionate about keeping it. Yes. Kill It.

 

Stephanie Everett (02:36):

Yeah, no. I mean, I build by the hour for the most of my professional career as a lawyer and everybody has heard me say this and I say it to Ron in this interview, like, it definitely sucks a little bit of your soul every time you hour bill by the hour. And what I remember being the most frustrating to me is before I was a lawyer, I had this nice little job, like my first professional job. I remember it so well. And I remember if I was really great and I got all my work done, like I could take Friday off and skip out early. I mean, well, you know, the boss was fine with that because it was like a treat. And then you could go start your weekend. And I just remember being a young 20 something and getting to leave the office early on Friday was the most amazing feeling, totally fast forward to when I was a lawyer.

 

Stephanie Everett (03:27):

And I suddenly realized I had all this in a way flexibility because I could leave on Friday whenever I wanted, but it just meant that I’d have to bill on Sunday or Monday of the next week or some other time. Like it wasn’t that I got a reward and got more of my time back for being efficient and being really good at my job. It just meant I had to trade around when I was going to work. And I was always gonna have to work this certain number of hours every year, no matter what if I wanted to hit my goals. And if I wanted to generate enough revenue for the firm and that concept just depressed the hell outta me. Like it really, it was like not rewarding. Like I didn’t get rewarded for doing a good job and being efficient and getting my work done fast. Right?

 

Jennifer Whigham (04:14):

You got more work.

 

Stephanie Everett (04:16):

Exactly. I just got more work. Yeah. And so I remember when I kind of shifted and decided to start doing this work and I left the law firm. Interesting enough, Ron Baker’s book was one of the first that I picked up and he just articulated so clearly why the billable hour was terrible. And I was like, yes, this is what I’ve been thinking all along. And I just didn’t know how to put it into words. And so in a strange way, it’s apropo that we have Ron on for this episode because in a way the billable hour still reflects to me what the old way of practicing law was and has been. And he even states in the interview like when it started, so you can find out the exact year. And I think what we’re trying to do with Lawyerist and what we try to teach in lab is that it doesn’t have to be this way that you can actually create a business where you do really quality work for your clients. And if you change the way you charge, then you can make more money and work less. And isn’t that what everybody wants. They wanna make more and do less, or do it differently and take Friday afternoon off and not have to make up for it on Sunday. So I was excited to do this interview. I think we get really fired up at the end so everybody can stay tuned and listen for that.

 

Jennifer Whigham (05:36):

You mentioned that earlier after you recorded and now I’m really curious what happens at the end of this interview.

 

Stephanie Everett (05:42):

Yeah, we get, we get pretty fired up about things so people can, you know, tell us what you think. I mean, if this still pushes your buttons and you’re still billing by the hour and you wanna fight me on this, I love this. No, I love the fight. Like I’m like bring it when you’re in the alley after this episode, bring it on and let’s figure it out because I guarantee you there’s a different way that you can price your services. I know in my heart, you know, could there be certain times when the billable make sense maybe, but I’m gonna press back and say, I bet there’s a different way, always. So yeah. So I’m excited and I’m, you know, this Jennifer as a coach, my job is to push people a little bit sometimes, right? Like if all I’m doing is giving you platitudes, then that doesn’t really help. So maybe this is me as coach Stephanie saying, just kill the billable hour. There’s a better way. And let’s figure it out.

 

Jennifer Whigham (06:31):

Yeah. Well happy 400. Let’s hear your conversation with Ron.

 

Ron Baker (06:36):

I’m Ron Baker and I’m a recovering CPA.

 

Stephanie Everett (06:39):

I love that Ron, because we often hear people say recovering attorneys. And so tell us, what are you doing now that you’ve found your way?

 

Ron Baker (06:48):

Wow. Once I stopped practicing, I started the Versage Institute, which was really dedicated to teaching professionals, value pricing with a stated purpose of literally eliminating both the billable hour and the time sheet across all professions. And I truly do believe that the only place time spent should matter is in prison.

 

Stephanie Everett (07:10):

Hmm. I love that. I often say that every 0.1 I had to write down on my time sheet, I felt like it sucked a little bit more of my soul away.

 

Ron Baker (07:19):

It does. It’s terrible. It’s it bifurcates your life into billable, non billable. If you’re non billable, you feel guilty about being with your family or your kids’ soccer game or whatever it might be. It’s terrible way to live. More importantly, it’s a suboptimal way to run a business.

 

Stephanie Everett (07:36):

Yeah. I mean, I’m with you right here, but we may still have a few naysayers in the audience. So for those who were, who are ready and need to think beyond the billable hour, like, what do you say to that crowd? Elaborate on why it’s bad for your business.

 

Ron Baker (07:52):

Well, the billable hour, it looks inward and value is created outside the organization. It happens outside the four walls with your customers. And inside we only have costs and efforts and activities and labor and all of that, but that’s not what creates the result. So I tell people, it’s kind of like when a loved one for a friend has a baby, nobody wants to hear about the labor pains. You wanna see the baby. And yet the billable hour business model, it not only focuses on the labor pains, it measures them in six minute contractions and then bills the customer for them. That’s insane because what the customer cares about is the baby.

 

Stephanie Everett (08:34):

Yeah. I suspect conceptually, a lot of people hear that and they say, yeah, I know, I know I should try something else. But the billable hour is easy and it’s known, right? Like there’s no guesswork. I don’t have to roll up my sleeves and figure out this thing called pricing. And so it’s just really tempting to stay with it.

 

Ron Baker (08:58):

Absolutely. That’s a process known as one economist labeled it, satisficing. We do what is sufficient and you know, satisfactory. We don’t set out to optimize or maximize. We set out to do good enough. And you know what? The billable hours, it’s been around a hundred years, 103 years, I can pinpoint the exact year for you. 1919, who was invented by a lawyer by the name of Reginold Eber Smith, who was a Harvard educated lawyer, who was the first person that we are aware of to adopt both the billable hour and the time sheet in his, I think he ran a legal clinic and then he went on to run forget the name of the firm either way. It’s 103 years old. Okay. And because he was Harvard educated, he was greatly influenced by the zeitgeist of his time, which was the scientific management revolution.

 

Ron Baker (09:50):

Frederick Windslow Taylor, that guy that went around with a stopwatch and timed, everybody thinking that we could make everything more efficient house wives, trains everything. It was a complete fraud by the way. But this goes back a hundred, three years. And my question is, has the economy changed? Has the way we work is our customer’s expectations. Have they changed? Of course they have and we have to adapt. So the model is suboptimal, even though it’s well understood. I don’t think customers like it. And there’s a big myth out there in the legal space that I have found that they say the customers demanded it. Customers did no such thing. It’s businesses that control their pricing policies. It’s the supply side, not the demand side. I didn’t ask for Uber surge pricing. I never asked my airline to go to revenue management or dynamic pricing. These changes happen on the supply side, not the demand side.

 

Stephanie Everett (10:50):

Yeah. I appreciate you saying that. Cuz I hear that a lot from lawyers and they’ll say, no, my clients want this. Or they demand it. And I wanna push back and be like I don’t think so.

 

Ron Baker (11:01):

Who doesn’t want to know the price of what they’re buying before they buy it. Name one thing for me, where that takes place. Now people say, well, healthcare, okay. Healthcare though, you’re not paying your own money. You’re using insurance. Co-Pay all of that. How about when you go buy non-covered healthcare like plastic surgery and things like that, the price is known to the penny LASIK surgery, known to the penny, veterinarians for your dog or pet known to the penny before you buy. Yeah. That’s how markets work.

 

Stephanie Everett (11:34):

And so talk to us about what approaches should we be taking when we’re thinking about how to set our prices? What’s the better way

 

Ron Baker (11:43):

Better way is to stop being so obsessed with cost. I mean, hourly billing is a form of cost plus pricing. And that’s why the time sheet came into the, the picture Reginald Heber Smith actually didn’t start the time sheet because he wanted to measure efficiency. He did it because he wanted to track the cost to make sure his pricing was right. Even though for a lot of things, he was giving a fixed price, but you should think about the value to the customer. So for example, if you think about value and you think about price and you think about cost, those are the three components of any transaction cost, price and value. Now, if you think about a bottle of water, okay, Pepsi, Coke, they know what it takes to produce a bottle of water. That’s not rocket surgery. And then you think about the price that we pay for that bottle of water.

 

Ron Baker (12:33):

That’s kind of an interesting question on its own because if you buy it in a Sam’s club or a Costco, you might be paying a nickel for every bottle. Cause you’re buying it by the pallet. You buy it in a Safeway or other type of grocery store might be 20 cents a bottle. But what if you buy it in a hockey stadium or a NASCAR track or an amusement park? How about an airport? How about a mini bar in a five star, four star hotel that water changes in price dramatically. I mean dramatically from 20 cents to $7.00 sometimes it’s still H2O, it’s the same product that shows us that there’s not one optimal price for a particular product or service. There’s a range of optimal prices that we’re willing to pay now put cost and price aside and just think about the value of that water, no matter where you’re buying it.

 

Ron Baker (13:25):

Well, if you were in the desert and you were dehydrated or three or four days, that bottle of water would be priceless to you, you’d trade everything you owned and you even go into debt. If you’re washing your dog with the same quantity of water, now it’s got much less value. And if you’re flooding your basement with water, now it’s got a negative value. You gotta pay somebody to pump it out. We didn’t change the product. Stephanie it’s H2O and yet the value went from near infinite to negative. Nothing can explain that accounting can’t explain that cost accounting can’t explain that generally, except that accounting principles can’t explain that. The only thing that explains that is to have a sane theory of value. And that is all value is subjective. Value is not a number. It’s a feeling. And I think that’s why we professionals have so much trouble with it.

 

Stephanie Everett (14:18):

Yeah. Wow. Yeah. Cuz I’m sitting here thinking, okay, I track that and yet what the hell do I do with it next? You know,

 

Ron Baker (14:27):

Right. What’s a feeling so it to keep the analogy going, is your customer in the desert or are they washing their dog or are they in their basement flooded because prices there’s two laws. I I’ll give you all value is subjected. That’s the first law of pricing. The second law of pricing is all prices are contextual. What we’re willing to pay for something is insanely determined by what we, we compare it to. So if I said to you, would you like to buy my unicorn? You have no idea what to pay for a unicorn. Cause you never bought one before. Well, it’s the same thing with pricing. It’s highly contextual as the desert and the washing, the dog and the blood in the basement illustrates. So we have to understand what it is our customers are trying to achieve, save their life, clean their dog, save their home from, you know, water damage. And I think that requires us to do a thorough diagnosis and know what the customer’s desired future state is because that kind of that’s the expectation that they come to the table with. Sometimes that expectation is unrealistic. We have to educate them if it’s totally unrealistic and we can educate them, then we probably have to withdraw from the engagement. But we need to have that conversation, that diagnosis, because as the doctors say, prescription without diagnosis is malpractice.

 

Stephanie Everett (15:44):

Yeah. And so I think what you’re really talking about is this idea of value based pricing, where you’re setting your price based on the value that the client assigns to it. Is that a close enough definition?

 

Ron Baker (15:58):

Yeah, of course the client doesn’t assign a value and they don’t know what the value is. A lot of times they’re not gonna give you a number because again, value’s not a number. This is, this is why this is really difficult to articulate, but you have to start with that value conversation. You have to start with what the client’s desired future state is, whatever that might be. If you can help that guide, that transformation from where they are to where they want to be, then what is the value of that to them while there’s gonna be? Obviously there could be some material value could be less risk. It could be more profit, could be things that we can quantify, but then there’s gonna be a spiritual component to the value. And by, by spiritual, I don’t mean religious. I mean, things, something spiritual by definition, it can’t be measured.

 

Ron Baker (16:46):

And I think a lot of the value that we as professionals bring just like doctors, lawyers, accountants is spiritual. It can’t be measured. It’s the relationship. It’s the caring, it’s the you’re in good hands. We’re gonna protect you. We’re gonna keep you out of trouble. We’re gonna help you when you get into trouble and we’re gonna help you achieve your, your dreams and your possibilities. And I think that’s probably three fourths of the value that we create for our customers is spiritual. Can’t be measured. And if you can illustrate that some way to the customer or communicate that some way to the customer, then you’re gonna be perceived as much higher value than just a lawyer who say is just more transactional.

 

Stephanie Everett (17:30):

Yeah. I think like where I’m struggling is the ideas and the concepts resonate with me and my, my integrator brain, my rules follower brain is like, okay, how do I get to that? Because again, I come back to the billable hours, just easy, right. I have a rate and I spend some time on something and I multiply it out and there’s a price and it’s obviously more complicated. It’s more nuanced and it’s better. I could see where it would be better for both parties, but I, I could also hear people say, okay, but is it that you have a conversation with the client and you start uncovering this information so that you can then provide a price to them? Is that how the process would look?

 

Ron Baker (18:15):

Yeah. So you’re having that value conversation or whatever you want to call it, to see if, if you’re a good fit for this customer, it’s, it’s actually kind of a prequalification. It’s also part prequalification of the customer to see if they’re a good fit. Sometimes we probably shouldn’t be working with the customer cuz maybe they have unreasonable expectations or they’re not a good fit for our firm, whatever it might be. But once you get past that qualification process, I kind of use the analogy of, if you go to a home builder or contractor and you say, build my dream house. Well what’s your dream house. What’s what does that mean to you? Right? That’s why we go to an architect and get plans. And the architects ask us about our family and how we live and do we entertain and all these things because he’s trying to figure out what our dream house it is and we need to play the architect role.

 

Ron Baker (19:05):

And we tend to jump into the contractor role and get our hands. You roll up our sleeves, get our hands dirty because we like to provide solutions. You know, we like to dive in that’s, that’s why the billable hour works so well. I don’t have to deal with any of this architectural crap. I can just go in and start pounding nails and bill send bills. In fact, I don’t even have to send the bill. I just bill out a time sheet and the bill goes out automatically. We turned pricing, which is a marketing function into an administrative task. And that’s insane.

 

Stephanie Everett (19:37):

Yeah. And so what I see what a lot of lawyers do and probably I need a lot of professionals is they’ll listen to this and they’ll say, okay, I get it. I need to change the way I charge. Maybe I wanna charge, you know, unknown price. So I’m gonna set a flat fee that I’m gonna tell the client up front. This is what the price is going to be. And what I see them then do is say, well, okay, this is what they need done in normal times. That would take me 10 hours. And my billable rate is $300 an hour. And so I’m gonna multiply those numbers and that will be my flat fee. And so I want you to talk about that, but then what I really want you to talk about is what I hear next is they say, well, it only took me four. So I made money. I am profitable or it took me 12. And so this is a disaster. I lost money and that money. Yes. This concept blows my mind. And I know that you’re gonna help me articulate why lawyers have to get out of this trap.

 

Ron Baker (20:36):

Yes. When you build a flat fee by looking at hourly, you know, saying estimating the number of hours, maybe out of fudge factor, maybe you don’t, you know, I can’t tell you how many firms tell me, oh yeah, we value price. But then you, you dig in a little deeper and you find that’s exactly how they’re setting that price. I call that value billing in drag basically, cuz you’re still looking at hours. Now what I would say to do instead is think of your costs or think of those hours right now, those hours are a ceiling over our head. You know, very few firms make above a hundred percent realization. And the thing is we put that ceiling there because the billable hour doesn’t talk about value. It’s not in the equation. Customer value is not in the equation. It becomes a maximum amount of money that we can make, which is another crazy business model.

 

Ron Baker (21:27):

Ideal. Why would we want a business model that puts a limit with a ceiling on our income? What I want you to do is change that ceiling to a floor. So go ahead and estimate the hours and then give that as a price, but make it one of three options. So if you provide two other options to the customer, you know, green, gold, platinum, classic, you know, good, better, best, small, medium, large. Then what happens is the customer gets to decide what value price trade off works for them best. And so providing options is a real powerful pricing strategy that people can do almost immediately.

 

Stephanie Everett (22:02):

Yeah. Perfect. So then once they’ve done that and they’ve gotten so they can consider the number of hours it might take. And that I hear you saying that could be an option. Then talk to me about why looking at whether a, a representation was profitable or not using that old model just doesn’t work because I think people get really tripped up on this idea and it’s, I think it’s apples and oranges, but I wanna hear your explanation.

 

Ron Baker (22:29):

It is apples and oranges and we have cost accountants to blame for this. And I’m also recovering cost accountant. We have this idea that if my hourly rate is $200 an hour and I spent five hours on something, it costs me a thousand dollars to produce. What cash did you pay? Are you paying your people $200 an hour? Obviously there’s a profit component in that $200 and that’s not cost and it’s certainly not cash costs. So if you’ve got an, an attorney that you’re paying a hundred grand a year to then whether or not they spend five hours on a file or 10 hours, there’s no cash difference. None zero. So the idea that the $200 an hour hourly rate represents a cost is insane. There’s a, usually a third, maybe more profit built into that real cost is taking your income statement, your P and L total cost and dividing it by the number of hours that you bill, which of course is highly dependent upon volume. So if you add a few clients at the end of the year, that means you’ve been overcharging every other client prior to that. So it’s this cost accounting game that has nothing to do with cash or really profit. And what I’m talking about when I say profit is cash, cash flow. We’re in business to make cash, not accounting, profit.

 

Stephanie Everett (23:54):

Yeah. That’s super helpful. Let’s take a quick break to hear from our sponsors. When we come back, I wanna follow up with a few more questions along those lines.

 

Zack Glaser (24:01):

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Stephanie Everett (27:18):

We’re back. And so then this begs the question for me, as we’re talking about understanding what costs we’re really putting in to our cases. And so the question might come up. Do I still need to track my time in 0.1 increments to know if I’m doing well?

 

Ron Baker (27:35):

Right. We have this obsession when, especially when you quote a price, that’s based on number of estimated hours. And again, I blame our profession for this, the accountants we have this federalization that we have to compare actual to budgeted and get a variance, but it’s completely unhelpful because we already have a hundred years of time sheet data. We should know what everything takes down to the minute in every firm for every single task that we do. And you know what we don’t people say, well, but this job’s completely different. Well, if every job’s a black hole or completely different, then why keep time sheets at all? Right? There’s no learning in the time sheet because it’s not granular enough. And so, no, I don’t think the time sheet helps at all in terms of managing your firm because it’s a lagging indicator. By the time you see something on a time sheet, it is by definition, no longer manageable. So it’s kind of like timing your cookies with your smoke alarm.

 

Stephanie Everett (28:37):

Hmm. I like that. Okay. So then the other big objection that I often hear, so let’s just hit this one is how could I possibly tell someone how much their representation’s gonna cost? Let’s just take, I don’t care any litigation matter, cuz that’s really where this comes up because I don’t know what the other side’s gonna do. I don’t know how many depositions they’re gonna notice or how many documents they’re gonna produce, or if they’re just gonna be a complete pain in the ass, in the family case about the toaster. And we’re gonna fight over that for six months. And so how do you address that as an objection?

 

Ron Baker (29:11):

Well, by pointing to the law firms that do litigation on a fixed price bar, look back, pat lamb, my colleague Mark Chen, who’s a family attorney and Jackson, Mississippi. He’s all fixed price. And of course, family lawyers love to tell me they’re litigators. They’re in court. You know, these issues are not insoluble. We have answers. Now. I don’t want you to put a price on something that is outside of your comfort zone. If you do that, then you’re taking on some risk. Now look, I’m happy to take on risk. You know, actuaries, I, I have earthquake insurance on my house. My insurance company doesn’t know when the next quake is gonna strike. They have no idea how big it’s gonna be. And they have no idea what their losses are gonna be. And yet they gimme a fixed price for earthquake insurance. Because if they didn’t, I wouldn’t know if I could afford it or not. If they said, oh no, Ron, we’ll just put your name on the list. And then when the quake strikes, we’ll tally up all our costs, divide it by the number of insurance, people on that list who have been paying premiums. And then we’ll figure out if we can pay your claims. I mean, business is full of risk and I’m willing to take on risk. I’m willing to tell the client, Hey, I’ll take this to the Supreme court at the right price.

 

Stephanie Everett (30:27):

Yeah.

 

Ron Baker (30:28):

As the in actuaries love to say, there’s no such thing as bad risks, there’s only bad premiums. And if you start thinking that way, it opens the door to all sorts of innovating pricing models. For example, you can say, well, look, it’s gonna cost you $250,000 for us to fully litigate this and we’ll do it at that price. Now, if we settle on the steps of the court or if we settle within a month or two, we’ll give you a call back. We’ll give you half that back or something like that. But now the incentives are in line. Yeah. Between the customer and the lawyer.

 

Stephanie Everett (31:02):

And I, I feel like I read this in one of your writings, but you know, you can correct me if I’m wrong. There’s also the, a concept in building. You brought up like construction of change orders, where if you’re clear on the front end of this is the price we’re agreeing on for this scope of work. Then as things change, as things come up, as new depositions are noticed, well, now that wasn’t in the original scope of what we agreed to, so now we can have a new conversation and address the new issue, whatever it is. Is, is that reasonable?

 

Ron Baker (31:34):

That’s exactly right. Yep. Just like your contractor does. If, you know, you hire a contractor to, I don’t know, build on a family room or something and he plows through the wall and he says, you got dry rotten termites. Well, he is gonna do a change order because that probably wasn’t in the original bid for the game room. And just like our auto mechanics, you know, you take your car in for a tuneup and they find out your brakes are shot while you’re gonna get a call from the service manager when you’re at work. And he’s gonna say, your brakes need redoing. And your first question is gonna be how much. Right. Right. Right. And imagine if they didn’t give you a price, imagine if they said, well, the mechanic will keep his time card. And we’re, you know, the shop rates 175 bucks that wouldn’t help you make the decision about whether or not you should get your brakes done. It gives you the price. And then what’s really neat about this change order concept is the seller maintains the pricing leverage and the buyer gets to make the decision on how to proceed. So you’re keeping the buyer in the driver’s seat, which is really important. Imagine if the mechanic just fixed the brakes and you went to pick up your car, thinking that you’re gonna pay for a tuneup, and now you’ve got a break bill on top of it. You’d be pissed.

 

Stephanie Everett (32:44):

Yeah.

 

Ron Baker (32:44):

And rightfully so.

 

Stephanie Everett (32:46):

Yeah. And then I guess even on the flip side, you know, where I would go with that example is with the contractor is like, okay, you can get this basic tile for your new kitchen or you can get this really fancy tile. And you know my husband jokes that if you give me three choices, I’m gonna pick the most expensive,

 

Ron Baker (33:03):

Oh, there’s no expenses.

 

Stephanie Everett (33:04):

Okay. I mean, I’m going to like it. If I don’t know the prices, I inevitably always go to the most expensive. But then when I see the prices, now I have to make a decision and say, right, am I willing to spend more for what I perceive to be a prettier product or a better quality product? I mean, this is how we make buying decisions every single day in every part of our life.

 

Ron Baker (33:26):

Yep. And that’s where the options come in. So brilliantly is by giving people three options. When you put three options in front of the human brain, they’re no longer asking themselves, should I work with, you know, ABC legal firm? It’s how should I work with ABC legal firm? Because you’re providing context. Remember the second law of pricing is all prices are contextual. Well now your prices have context and you’re providing it. You’re putting your own prices within a context. It’s kind of like you competing with yourself. Yeah. We have a basic offering. We have this plus offering and then we have this plus plus offering. Most people do pick the middle by the way, but there’s gonna be some people that want that white glove, pampered treatment. Some people wanna sit in the front of the airplane. Some people want to have the presidential suite. We shouldn’t project our price sensitivity onto our customers because if we never offer, you know, a presidential suite will never sell one.

 

Stephanie Everett (34:22):

Yeah. It’s true. I love everything you’re saying because it is so client-centered, quite frankly. And it, I see like law firms with collections issues and it’s because they’re afraid to talk about money or worse. I think they essentially lie. I’m gonna call it a lie because they’ll say, well, I bill it $300 an hour. So give me $5,000 retainer and we’ll get started for you knowing full well. And so the client thinks, oh, this is a $5,000 retainer. That’s what they hear and what they remember. They have no concept that you’re actually building them a $25,000 divorce. And so when they start the bills start coming in and they have no control, they don’t know what’s going on. They just start getting invoices that they’re expected to pay, that they have no way of paying. And they’re embarrassed to tell you. And now it’s, I mean, this is such a train wreck from the start.

 

Stephanie Everett (35:14):

And if we just flipped it and had these honest conversations with our client and the fear is so I can hear you guys listening right now, you’re gonna say, but you know, say, I tell ’em $25,000. And then they’re just gonna go down the street and hear five and go with that guy. And I’m like, I mean, first of all, we should all be doing this. But you, if you educate your clients and say, Hey, when you hear the guy down the street, cuz you, you may go shop this price. In fact, I welcome you to, but here’s how I want you to shop it. Don’t go ask what their retainer is in their hourly rate, ask them how much it’s gonna cost. If all these things in my case happen or whatever it is you, I mean, you educate your client and then you invite them to go shop. They probably won’t. But if they do, they’re at least gonna get the actual information and not just some BS answer about a retainer and hourly rate.

 

Ron Baker (36:02):

Yep. I, I couldn’t have said it better. I mean, that’s brilliant. And, and I’ve heard that from attorneys too. Well, I can’t quote the 25,000 because I won’t get the client better to quote the five and then bill ’em 25 and really piss ’em off. But listen, if a professional can’t give me a price. I don’t care what they’re doing. If they can’t give me a price, I got the wrong professional. The last thing I want to hear from my surgeon being wheeled into the OR is, oh wow, look at that. I’ve never seen that before. When we start talking about, oh, this is a block hole or a million things that could happen. Well, my God talk about raising the anxiety of your customer. If you truly feel that way as a professional and you have no business taking this matter on cuz you don’t have the professional expertise, I’m not gonna go to a general physician who dabbles in heart surgery on the weekends. I want somebody who’s done this millions of times. And if you’ve done it millions of times, thousands of times, hundreds of times, then you should be able to give a price. No, excuse not to what you described. I think Stephanie is customer abuse.

 

Stephanie Everett (37:07):

Yeah. I love it. Yes. I mean, I feel like you and I could go on this high horse for a long time

 

Ron Baker (37:15):

Sure we could.

 

Stephanie Everett (37:15):

I know before we hit record, we were talking about like how long ago I started reading your work, which was super helpful to me as I’ve been on a mission. My personal mission is to kill the, the billable hour. So we are aligned on that. If someone is listening today and is ready, but needs more help and needs more guidance. I know you’ve put out so many great written materials, but what’s one that we could point to or two in the show notes of where people could go to get started

 

Ron Baker (37:41):

Implementing Value Pricing, which is my latest book on value pricing written for professional firms. You can get it on Amazon. That would be the book to start. There’s an appendix in there for law firms strategies for implementing the billable hour. A lawyer actually wrote the forward to that book and he made the switch to value pricing. And so there’s some, there’s some really good information in there for lawyers.

Stephanie Everett (38:06):

Yeah. I love it. So many of the lawyers that I work with in our Lab program have made the switch and they help each other and support each other. And I promise you, it is better for you for your soul and for your business. So thank you so much for being on today and for having this conversation with me and for being a fellow warrior against the billable hour, we will, we will do it one day.

Ron Baker (38:31):

We will. Thank you so much, Stephanie, it’s been a pleasure.

Announcer (38:36):

The Lawyerist Podcast is edited by Britany Felix. Are you ready to implement the ideas we discuss here into your practice? Wondering what to do next? Here are your first two steps. First. If you haven’t read The Small Firm Roadmap yet, grab the first chapter for free at Lawyerist.com/book. Looking for help beyond the book? Let’s chat about whether our coaching communities, right for you. Head to Lawyerist.com/community/lab to schedule a 10 minute call with our team to learn more. The views expressed by the participants are their own and are not endorsed by Legal Talk Network. Nothing said in this podcast is legal advice for you.

Your Hosts

Stephanie Everett

Stephanie Everett is the President of Lawyerist, where she leads the Lawyerist Lab program. She is the co-author of the bestselling book The Small Firm Roadmap and is a regular guest and co-host of the weekly Lawyerist Podcast.

Featured Guests

Ron Baker Headshot

Ron Baker

Ronald J. Baker started his CPA career in 1984 with KPMG’s Private Business Advisory Services in San Francisco. Today, he is the founder of VeraSage Institute—the leading think tank dedicated to educating professionals internationally—a radio talk-show host on Voice Americashow: The Soul of Enterprise: Business in the Knowledge Economy. Ron has authored seven best-selling books, including: The Firm of the Future; Pricing on Purpose; Measure What Matters to Customers; and Implementing Value Pricing. His forthcoming book, Time’s Up!: The Subscription Business Model for Professional Firms, to be published in November 2022.
Ron has toured the world, spreading his value-pricing message to over 250,000 professionals. He has been named on Accounting Today’s 2001-2007, and 2011-2021 Top 100 and Top 10 Most Influential People in the profession; and inducted into the CPA Practice Advisor Hall of Fame in 2018. He is a faculty member of the Professional Pricing Society. He presently resides in Petaluma, California.

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Last updated August 11th, 2022