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March 17, 2008

How To Set and Discuss Fees - Lesson #10

Now that Solo Practice University E-zine has more than 750 subscribers, I thought I would give you another sampling of the newsletter so you can decide if you would benefit from signing up to receive it or know of others who may.  This edition is called "How To Set and Discuss Fees and here is an excerpt."

Setting fees for your legal services is a two-fold proposition. It isn't just learning what the going rate for legal services is, developing a standard or creative pricing strategy and then positioning yourself based upon your experience. It is also confidently being able to convey to the client the value of your services.To be competitive in the legal services marketplace you must properly price those services based upon both your demographic area and the practice area. Your fees are basically pre-determined by what the market/clientele can comfortably sustain as well as the education you provide them as to the value of your services.

However, there are many schools of thought on pricing services which also includes value billing, a concept which is gaining traction in the legal world and taking on the billable hour as a viable alternative. Value billing is in essence creating a pricing strategy which reflects both the value you place on your services and the value the client places on your services as well as the outcome. Some claim there is more partnership and control passed on to the client through this type of fee structuring and some claim it is more freeing to the attorney because they are no longer tied to the clock. Regardless the debate, this is a more complex pricing structure (imagine a seasoned chef who's recipe is a 'pinch of this' a 'smidgeon of that.' The operative word is 'seasoned.') So, for purposes of this newsletter we will primarily discuss the traditional methods and models of setting fees.

If you ask a twenty-year family law veteran the going rate in in your state's major city and she replies "$450 per hour against a $20,000 retainer," will that fly for a two-year attorney in your state's smaller towns? Probably not.

The most efficient way to learn what the market can sustain is to talk to other attorneys about the going rate for services and to check statutory restrictions and limitations for services.

There are many reasons to charge market rates for your skills even if you are fresh out of law school.

First and foremost, today's client is savvy and has knowledge and expectation of what they should pay for quality legal representation. If you undercharge, you risk making the knowledgeable client suspicious of why you are cheaper. Are they getting "lesser" quality services? You also run the very real risk of alienating your brethren because you are dropping the overall price for services which ultimately impacts every other lawyer. Some call it "a race to the bottom" which is considered a losing proposition in the business world. In addition, alienating other lawyers is never a smart practice. Your professional peers play a very important role in the success of your solo practice on many levels.

You may feel that by charging less than the market can bear you are doing the client a favor but in the long run you are doing more harm than good all around by diminishing the value of your services. However, if you are creating a new and exciting pricing concept which works for you and your pocketbook and still provides value to your clients because you have packaged it properly, then by all means forge ahead.........

If you would like to read more of this newsletter (#10 in the line up) just sign up in the e-mail drop in the right hand column.

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Comments

Lawrence D. Burroughs II

This is one of the most difficult topics a new attorney faces, particularly when starting straight out of law school. When I started out I was priced far too low and people were quick to hop on board as clients. I can't recall a single client who came in to meet with me that didn't retain my services. On the other hand, I missed the opportunity to meet with those who would value my services at a reasoanble rate. They had kicked my tires before meeting with me and went on down the road to the next attorney who charged nearly double what I was charging at the time.

I suppose we live and learn. You can ask around to see what others are charging or "scope your competition" but you need to be careful. You'll want to make sure you don't run afoul of your state's rules of professional responsibility. The best advice I can give is to make sure you're charging enough to sustain your business. My CPA was the single best source for setting my hourly rate. We determined what I needed to make in order to cover my overhead and projected that based on the number of billable hours I anticipated working each month. I based my flat rate fees on a multiple of my hourly rate times the anticipated amount of time it would take to work a particular case to completion. Flat fees are sort of like an all you can eat buffet. You win some and you lose some but whatever you do, you'd better not run out of food.

In the end, you need to value the service you provide and have a little confidence. If you gain a reputation for being the lowest in the market, you'll have a hard time shaking that stigma. Just be fair and reasonable. Also, be sure to revisit this topic frequently in your practice as it begins to grow. You'll be able to answer most of your own questions about fee setting through your own experiences.

Susan Cartier Liebel

Larry, thanks for the great additions...this excerpt is just that, an excerpt. I discuss more fully the overview of pricing in the newsletter itself.

I like your point about discussing your financial needs with an accountant before hand if you need one to help you assess your financial goals. It would make sense to do so simultaneously with determining which is the best business entity for your firm starting and going forward.

As always, you're a great part of any discussion!

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