What’s “Reasonable?”

Let’s talk about the worst part of the most unnecessary (and harmful) rule in the ABA’s Model Rules of Professional Conduct: subsection (b)(1) of Rule 7.2.

What, you may ask is subsection (b)(1) of Rule 7.2?

It’s the begrudging caveat, added after Bates v. Arizona found that consumers and attorneys have a First Amendment right in attorney advertising, that attorneys can, in fact, advertise:

“(b) A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may

(1) pay the reasonable costs of advertisements or communications permitted by this Rule;”

Why the powers-that-be didn’t just get rid of this rule entirely, I will never know – except that attorneys DO love their rules. And let’s face it: both expeditiousness and caution are going to cause us lawyers to gravitate toward incremental carveouts rather than bold rule changes.

But 40+ years post-Bates, these weasel words continue to do their damage, as attorneys and bar regulators agonize over whether a given payment for advertising is “reasonable.”

This, despite the fact that there is no class of professionals less qualified than attorneys to opine intelligently about the reasonableness of business marketing expenses. And despite the fact that it’s a vacant and empty exercise to begin with, as any “unreasonable” charges for marketing will be quickly squashed out by market forces.

But it gets worse.

For in their examination of this issue, virtually all attorneys and ethics committees make the same error out of the gate, assuming that all advertising should cost the same because all costs are the same. They know this because they’ve bought yellow pages or magazine ads, and hey, all paper and ink costs the same, right?

Not only does this logic not apply in the online world – where the cost inputs to providing advertising across different services or practice areas CAN actually vary widely – more importantly, it makes a fundamental error in assuming that the cost of advertising can only be reasonable in relation to the cost it takes to produce and serve such advertising. It’s understandable that attorneys would hold such a narrow view – we are, after all, accustomed to selling our services simply on a markup to our cost – but it is surely NOT the only, or even the best, way to determine whether the cost of advertising is “reasonable.”

Why? Because an attorney who is buying advertising doesn’t care what the costs of providing that advertising are. They don’t care what size of margin is being gleaned. That information is completely irrelevant to them. What they DO care about is the return on investment they get from that advertising. They care about the business they get, and the price they are charged to generate that business. That’s all.

This comes back to a deceptively simple concept that most businesses (except, apparently, lawyers and law firms) have to grapple with: how to price their services. The two primary means are cost-based and value-based pricing. But while it’s important that pricing ultimately cover costs, the more sophisticated and client-focused approach is to look at the value you are driving and price based on that (this hackneyed old anecdote is a useful illustration of the primacy of value over cost-based pricing).

What’s “reasonable?” It’s what someone’s willing to pay, based on the perception of the value delivered. That customer-centric perspective should be the beginning – and end – of any evaluation of the “reasonableness” of charges for attorney advertising.

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