knowing). This is problematic because both the manager and employee are subject to inconsistencies.

Pricing Strategies

In a strategic environment, the first things a firm needs to decide are: Why are we in this business? What do we want out of this? What are our economic expectations from this business? After answering these questions, the firm can establish a pricing model based on expected volume. Then it must talk to its clients or prospective clients, research how its competition is pricing its services, and determine whether it is possible to deliver the desired economic outcome in its particular marketplace at the price established. Strategically, the firm has to be willing to go back and reanalyze, gather more data, make new projections, change its expectations, and so on. Pricing, no less than any other aspect of firm management, is an evolutionary process.

Ideally, the firm should desire an economic outcome that creates a fair market value for the services it wants to provide. This may mean that people who need low-level services cannot get them from the firms partners within the pricing model established. For example, every year nurse practitioners see a larger volume of patients. Why? Because the patients fundamental needs often can be served by a nurse practitioner at the nurse practitioners price. They do not need to see the physician simply to have their throat swabbed for a strep test. The strategically managed medical practice will realize that it can still deliver its desired economic outcome, but it must bring in staff who can serve the lower-impact needs of clients at lower prices. As always, the right starting point when making this determination is the clients own needs and expectations when they visit the medical practice.

The same is true for law practices. Staffing a project with a paraprofes-sional rather than an attorney alters the law firms economic model according to the fair market value of the services the firm provides and the price clients are willing to pay. Clients who are going to court are normally willing to pay a much higher price to have their attorney with them than if they just have a simple question about a trust document that does not require a high level of expertise. In the latter case, the client may not want to pay a partner billing rate for a partners answer to a question that could be satisfactorily answered at a lower level.

When a firm understands its economic objectives and the choices it can present to its owners and employees, it can set prices. But it remains essential to reach out to the clients and ask, Is that fair market value? If the client does not agree that the pricing for a given service is set at fair market value, that does not necessarily mean that the firm has overpriced the service; it simply means that the firm must create a more sophisticated

delivery mechanism, with different layers of pricing, to satisfy its clients needs, and that the firm must improve the perceived value for the service in the minds of their clients.

It is generally an easy task for a professional services firm to find out what the competition is charging. Most professional industries have support organizations that provide survey results on pricing. Take a close look at these studies. The respondents are usually fairly honest about the information they provide. A firm can also ask clients, prospects, former clients, or friends what they pay for the services provided by the firms competitors. The answers will be enlightening.

This again highlights the fact that firms have greater access to information than ever before. Twenty years ago it was challenging for a professional firm to find valid data on what its competition was charging. Now, a great deal of price information is available on the Internet. Benchmarking services, such as Integra.com or First Financial, also offer incredible amounts of readily available and well-organized information.

It is less important whether a firm uses hourly rates, fixed fees, or some other arrangement to price its services. What really matters is whether its clients pay fair market value for the services the firm provides. The clients reaction to the bottom line on the invoice, however it was established, compared to the services received determines whether fair market value was provided. As noted earlier, many professional firms do not spend enough time learning what their clients expect from their services, so they are generally unable to determine whether their pricing standards are at fair market value. It is vital to invest time with clients, unambiguously defining the scope of the services to be provided, setting the expected outcomes, and establishing the value-added benefit that the client will receive. Spending this time upfront will greatly reduce problems with prices or fee collection.

Fee agreements with clients should always be set forth in writing. The professions canons of ethics may already require this, but even if they do not, the firm must have a written understanding of what it is going to do, why it is going to do it, how it will satisfy specific needs of the client, and what the full cost of its services will be. The firm should not begin work without the fee agreement.

Collection Strategies

In any business, having a customer that never pays is the same as not having a customer. In a professional services business, when the firm bills its client for services rendered, the firm should, quite reasonably, expect to get paid. It is when the firm determines how much it is going to bill that it should make the decision about fair market value for services rendered. A firm cannot afford to have clients that do not respect the agreement they have made with the

firm to pay for services consumed. If the firm has met expectations, understood the clients needs, and satisfied those needs, it has every right to expect to be paid.

A zero-tolerance policy does not mean that a firm cannot have empathy for a clients difficult economic condition or that it should not work out payment terms with a client. But it does mean that a firm should not write off billings because a client is exhibiting reluctance to pay in full. It is generally better to press for payment and then consider writing off the client. Slow-pay and short-pay clients are not the kind that the firm should build its practice around. Having a strategic management plan for the firm can provide the foundation for dealing with a nonpaying client when problems arise. It is not difficult to review the firms internal objectives as set forth in the plan and conclude, This client is not satisfying our internal objectives. We seem to be satisfying the clients objectives, but it is not satisfying ours. This is an unworkable situation. Adhering to this idea can be particularly difficult in a sales-oriented professional services culture. In such a culture, the firm should ask when was the last time we walked away from a bad deal or when was the last time we culled a bad client from our list. If the answer is never, then either the firm has no bad deals or clients, or it is not being aggressive enough in managing its risk. The answer is most often the latter.

Quality Control

A constant program of self-analysis is essential to ensure the quality of professional services delivered. Client complaints should be channeled through someone who is not directly involved in providing services to the client. If the professional who is serving the client takes the complaint, the firm may not get an honest and immediate reaction to the complaint. Client satisfaction surveys and regular, focused discussions between clients and firm management should be used to create an independent channel through which clients can give the firm their complaints or suggestions for improvement, without the filtering bias of the service team that failed to meet expectations. Having an independent channel through which clients can contact the firms management is critical.

Training, continuing education, and appropriate credentialing are also essential for quality control. Weak or unsuccessful professional practices usually do not have a dedication to the highest standards of training and supervision. Such firms do not survive for long. No professional services firm in any industry can enjoy sustainable success without a plan to ensure the constant improvement of its professional staff through training and education. The topic of training and professional development is addressed in Chapter 10.