Could professional practices be more profitable through value-based pricing, rather than time-based?

Time is money – the majority of lawyers are selling time. The billable hour has been the industry standard for pricing since around the 60s and is based on the principles of the scientific management movement of the late 19th century – the key to success is leveraging time.

The problem with this approach is that the scientific management principles were conceived for the industrial economy, not the knowledge economy. Charging clients based on time forces lawyers to focus on input rather than output, however from the client’s perspective, time is irrelevant to value. As Practice Development Guru, Ron Baker puts it – “time is not value, it’s not even cost. It’s a constraint”.

He goes on to argue that time-based pricing models fly in the face of the laws of economics and consumer psychology. Consumers like certainty – even if it means they pay a premium for it. Professional practices could actually stand to make more money switching to value-based pricing.

The problem with the billable hour does not end there. It is also argued that it discourages pro bono work; discourages case planning; provides no stability of cost for the client; may not reflect value to the client; penalises the efficient lawyer; discourages communication with clients; doesn’t reward the lawyer for productive use of tech – and perhaps worst of all, (anecdotally) many young lawyers leave the profession due to pressures related to the billable hour.

One of the main reasons a value-based pricing model has been unpalatable in professional practice is that it can be very difficult to calculate end value of a legal service and crucially, it puts this risk back on the practice as opposed to the client. But could switching to value-based pricing strategies lead to practices making more money? Clients having certainty and peace of mind? Young lawyers feeling less pressurised? Could efficiency and creativity be rewarded rather than penalised?