Find out why 25% of SMEs want billing by the hour.
Only one in four SMEs want to be billed by the hour, yet many lawyers aren’t taking note. It’s just one of the findings from NAB’s inaugural Legal Services Industry Survey to underscore the pricing pain points between lawyers and their SME clients.
Sometimes people can be more worried about a fair price than the actual price itself - understanding the final bill, preferably beforehand, also plays a big role. This might go some way to explaining why many lawyers’ SME clients prefer a fixed fee over billing by the hour – just one finding in NAB’s inaugural Legal Services Industry Survey.
In fact, the survey shows that pricing is a particularly fraught issue for SMEs. Not only are a sizeable number unhappy about the way their fees are structured, many are put off by what they see as a hefty final bill. In fact, high prices were a common reason given by SMEs for switching law firms or avoiding using a lawyer altogether.
Knowing your client
It’s of particular concern then that many lawyers appear unaware of how SMEs view such issues.
A better understanding of what SMEs think about their law firms – and comparing this with what lawyers think about their clients – was the driving force behind NAB’s survey. The comprehensive study of 70 law firms and over 750 small and medium-sized businesses picked up a number of discrepancies between what lawyers provided (or thought they should provide) and what SMEs actually wanted.
Billing blues
Pricing is a clear case in point. NAB’s survey indicates that many SMEs prefer fixed fees (40 per cent) and just one in four want billing by the hour. Yet this has gone relatively unnoticed by lawyers, with only 20 per cent believing that SMEs want to know what they’ll pay upfront.
In reality, 40 per cent of SMEs are being billed for services hourly and only 30 per cent via a fixed fee.
These findings provide considerable food for thought, according to NAB Customer Executive Professional Services, Brett Moore. “Not all work can be done on a fixed-fee basis, but to what extent do lawyers have that conversation up front?” he asks. “Do they ask the customer, ‘Here’s the piece of work you’re asking us to do. Is there a way we can package this in such a way that you get greater surety of cost?’” He believes the findings present a clear opportunity for law firms to reflect on their current cost models.
The upside
Fixed fees don’t have to threaten law firms’ bottom line. In fact, US research by legal industry consulting firm Altman Weil shows that law firms that charge fixed fees actually make more profit than those charging variable fees for similar work.
It comes back to perceptions of cost. Ultimately, people are more satisfied if they have certainty of price. This is supported by the findings of FirmChecker, sister company to research consulting firm beaton, a leading specialist on professional services. Based on the responses of about 8,000 business clients, FirmChecker proved that if you operate fixed fees for a certain work type, whatever that may be, you will receive a higher satisfaction rating from your client. Moreover, hourly rate clients perceive their law firms to be more expensive than do fixed-fee clients, independent of the actual fee level paid.
Feeling the pinch
Nonetheless, SMEs are also put off by the sum total being charged. NAB’s survey found that about 30 per cent of SMEs avoided using a professional services firm due to high prices, while 37 per cent said that they wanted services at a price they could afford. As one respondent noted: “We want a cost-effective solution when we require legal advice, rather than all the bells and whistles.”
For Moore, it shows that there’s ample room for new market entrants. “This suggests there remains a sizeable opportunity for low-cost legal service providers to meet the needs of small business.”
To understand more about how SMEs view their law firms, read the full NAB Australian Legal Services Industry Survey Key Insights into What Your SME Clients Need and Value.
