Our Fees are Determined by the Market
Really?
How are professional fees determined? What role, if any, does the “market” have on this question. In this article, Rod Burkert shares his views on this matter.
You get what you pay for. We hear this cliché most often in a pejorative sense, but is it true? How do we know? Take your practice … how do you determine the fees you set for your professional services? Only one answer makes sense, which you will undoubtedly agree with yet likely dismiss (read to the end).
This QuickRead was inspired by a LinkedIn conversation with a BVFLS colleague. Here is the original posting:
I recently got a call from a lawyer. She described a case and wanted to know what it would cost. I gave her my standard disclaimer about litigation engagements being unpredictable and, because of that, I wouldn’t do the work on a fixed fee. But I estimated that the fee would be X. She said she had somebody else who’d offered to do it for half that. I told her that if she felt comfortable with the other [party], she should go with it, but in light of the work involved, I couldn’t do it for that, nor could anybody I know. Good luck to her.
The sad part is that we never know if there really is another person in the wings who quoted that discounted fee or whether the attorney is bluffing advocating for her client to see if we will drop our price. (Color me jaded.)
But my friend’s post got me thinking about our fees. Let us go down the rabbit hole.
Question: Who decides your hourly rate … your fee?
Answer: You do.
Oh sure, you can argue that “the market” decides … that allows you to deflect responsibility. But which market, exactly, are you talking about?
- The market for your years of experience?
- The market for the type of service rendered?
- The market for where you practice?
- The market for where the work will be performed?
There are two other factors in play as well.
- Self-worth. What makes one appraiser decide s/he is worth $300 per hour and another appraiser decide $400 per hour? Assume the relevant market is the same (whichever one that is), but maybe the first appraiser has an understated feeling of self-worth and the second an inflated sense. It doesn’t mean the $300 per hour work will be worse or the $400 per hour work will be better. Do you get what you pay for?
- Overhead. My Practicing Solo interviewees often stated they charged a lower freight because they have less overhead. Overhead is relevant for practice profitability; it may or may not create value for the client. For example, an extensive research library creates value while high-rise rent does not. But is the work of an office-in-the-home appraiser worth less than the work of a fancy-digs appraiser, all other things being equal? Do you get what you pay for?
At the end of the day, we have no reality check for our fees—just anecdotal evidence we’ve gathered about what someone else charges or what “the market” will bear (and distorted by confirmation bias).
Our fees should be based on the value our client receives. And note that the same service could have different values to different clients. That is why one mantra of value pricing experts is to price the client, not the service.
To view this through a lens we can all identify with, let us stop setting fees according to fair market value (the value to any hypothetical willing prospect) and start setting them according to investment value (the value to the specific prospect who is in front of us right now).
It is the only market that matters.
Everyone has a different idea of what a successful practice is. The practice you want is personal because it is based on what “successful” means to you. I help practitioners focus on the strategies, tactics, tools, and tech to build/grow/scale their versions of successful practices. If you want some help with that, e-mail me at rod@rodburkert.com.
