Is Price Transparency Always A Good Thing for Prospective Clients?

As Matt Homann points out, price transparency is coming soon already here in both the medical and legal profession.  Of course, it goes without saying that most lawyers dislike the idea of putting price on their website either for fear that competitors will undercut them or concern that clients will be deterred by a high hourly rate. But more importantly, is price transparency a good thing for clients?  I don’t think so.

There are plenty of objections to posting price on a website. One commenter at Matt’s site asserts that price listings commoditize legal services, while I’ve previously observed that rates, without context don’t give any sense of how much a case will cost.  But what’s worst about price transparency is that it deprives lawyers of pricing flexibility, largely to the detriment of consumer clients.

The dirty little secret of law practice is that most lawyers have multiple rates.  In my industry, most lawyers have different rates for municipal and corporate clients or large established developers and nascent renewable start-ups. Likewise, in consumer industry, many lawyers charge an established businessman more for a contract or criminal defense representation than a more impoverished client.

While different rates for different clients seems unfair, it’s not for several reasons.  Often, a well-heeled client has more complex needs (a gazillionaire who wants to avoid tax on his passing will need more complicated estate planning than a civil servant) or a stronger interest in the outcome of the case (a prominent local politician could endure more harm to his reputation if convicted of a DUI than an unemployed octogenarian). Moreover, ethics rules don’t require identical rates for seemingly identical work but only that overall rates for a matter are reasonable. 

Though it’s counter-intuitive, flexible pricing benefits lower income clients.  That’s because the clients who pay more subsidize those who can’t pay as much.  If a case or a client is sufficiently compelling, most lawyers will take the work so long as they can earn some bare minimum amount which is counterbalanced by premium fees in other cases.  If lawyers can’t charge differential rates to different clients, they’ll either have to raise rates across the board or stop accommodating lower and middle income client with the means to pay an acceptable minimum fee but not more.

Price transparency restricts lawyers’ pricing discretion  in several ways.  Ethics rules (not to mention general consumer laws) bind lawyers to the prices and rates posted at their websites, meaning that a lawyer who advertises a $250/hour rate can’t up it to $450/hour when Donald Trump walks in the door. Conversely, a lawyer who posts $450/hour rates from the get-go will deter more budget-minded clients from calling and learning about the prospect of reduced fees.

Those who support pricing transparency argue that making information about rates available enables clients to bargain for rates and gives them leverage to negotiate. Trouble is, most honorable clients – those who respect lawyers and want to pay but can’t afford much will be too ashamed to ever ask a $450/hour lawyer for a downward reduction. Instead, they’ll go to whomever happens to fall within their price range and take their chances on quality because they feel that they have no other choice.  That’s the group that pricing transparency hurts the most.

I’m all for innovation, I swear. But not every new idea is a good one just because it’s new.  Certainly, explaining to clients the types of scenarios that drive rates (quick deadlines, disorganization by clients, issues of first impression) is important along with description of metrics that clients can reference to determine whether a lawyer is ripping them off (Note: paying a $5000 retainer and not hearing from the lawyer or the firm again for 2 months is probably a sign that the service is somewhat substandard).  Teaching clients to ask for ballpark estimates of cost will also allow them to avoid unpleasant price surprises at the end of a case – and is something that any lawyer should be able to provide irrespective of the matter involved.  But simply slapping a price tag on the cost of legal services and leaving it at that isn’t a good idea in my view. What do you think?