United States: Value-Based Pricing Comes To Law Firms

Last Updated: August 10 2018
Article by Joel Herman

The concept of value-based pricing (VBP) is already common in the consulting world and has received a big boost in the health care industry thanks to various initiatives launched in conjunction with the Affordable Care Act. Will this transfer over to the legal industry? Law firms could soon see a similar demand for change in how they charge from clients trying to get the most bang for their buck.

Benefits of Value-Based Pricing

VBP is a successor to alternative fee arrangements (AFAs), but instead of billing based on the services provided, it charges clients based on what they value. Some firms consider this the supply and demand theory of basic economics. Others consider it a more customized approach to fees that rejects a one-size-fits-all model. VBP recognizes that different clients place different values on different factors. For example, one client might be primarily concerned with winning at trial to deter other potential lawsuits, while another may focus more on ending a case as soon as possible.

Used properly, VBP allocates risks between attorneys and clients, aligning attorneys' incentives with clients' goals so the firm has more skin in the game. It shifts the focus from hours billed to specific projects or desired outcomes. The result, ideally, is a stronger partnership with clear benefits for both parties.

One benefit to using VBP is that your firm and individual attorneys will not have to devote valuable resources to tracking time and compiling detailed invoices. By sidestepping lengthy client invoice and approval processes, you may improve your firm's efficiency and cash flow, not to mention avoid unpleasant invoice disputes. VBP also allows you to learn more about your client's business, plans and objectives, all while being rewarded for achieving positive results.

At the same time, VBP also benefits clients. It provides greater transparency and more certainty than hourly billing, which in turn improves the client experience. VBP further frees clients from unexpected surprises, the tedious process of scrutinizing invoices and the worry over runaway costs.

Tips for getting started

Implementing a VBP billing model requires careful planning and preparation, as well as some close collaboration with your clients. Transitioning should include the following steps:

  • Establish the Client's Value Points
    Discuss with the client how it values the various types of work you perform for it and determine each project's scope. If the client has a portfolio of continuing work, it may prove wise to assess value provided based on the total return on the client's investment, rather than matter by matter.
  • Assess Your Capabilities
    Using historical data, determine whether you can efficiently provide the necessary services at the amount the client is willing to pay. You may well need to develop or refine processes, procedures and systems to accurately estimate and manage costs.
  • Offer Several Tiers of Value
    Present different prices based on the amount of value expected. This can be an effective way to demonstrate to the client what it might sacrifice to save money and to get a handle on the client's price sensitivity, which can be useful information going forward.
  • Prioritize Project Management and Communication
    You must determine early on who will do what work and according to what timetable. Regular monitoring will play a crucial role, ensuring that everyone involved is adhering to the plan.
  • Monitor Work for Scope Creep
    The dreaded scope creep can easily eat into your profits. Be sure to alert the client to such creep as early as possible. Provide alternatives on how you can proceed and issue a change order if the client approves extra work or work that was not contemplated in the original fee agreement.

Money Talk

A common hurdle law firms have with adopting VBP is the reluctance that attorneys often feel when it comes to talking to clients about billing and collecting. Managing client's expectations is imperative. Those who can get over the those discussions will likely find that clients welcome the opportunity to explore ways to build a more aligned and mutually beneficial relationship, whether for a single matter or several engagements.

Sidebar: Value-based fee structures to consider

After receiving input from clients, let's say that your firm has decided to give value-based billing a try. Now what? You have several options for structuring your fees, including:

  1. Success Fees
    You and the client define the specific results or milestones — for example, winning a summary judgment motion — that will trigger a bonus payment over and above the regular fee. Firms generally reduce their regular fee in exchange for a share of the potential upside. Your arrangement also might include a broken deal or similar discount if you do not achieve the desired outcome.
  2. Performance-Based Holdbacks
    Part of the client's fee is held back and paid out over time based on metrics evaluations of your firm's performance. Metrics might be service-related or outcome-related.
  3. Reverse Contingent Fees
    This might be an option if your client is the defendant. Reverse contingent fees are based on a percentage of the difference between the client's actual costs (including damages or settlement amounts and legal costs) and the previously estimated value of the client's exposure in the matter.

Remember, you may use different options for different clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions