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How to Price Your Legal Services the Client-Centered Way
Offering client-centered legal services often starts with your pricing and fees and rethinking the traditional hourly-billing model. There are a variety of pricing models that will align your fees and income with the goals of your clients and all of them are built around encouraging your firm to be both effective and efficient in delivering value to your clients. At the same time, your law firm’s pricing & fees won’t live in a vacuum and must fit into your firm’s overall finance and profitability strategy and with competitive solutions in your marketplace.
Setting your pricing requires that you understand the value of your work. Value will mean different things to different clients. One client will find emotional value in the relief you can give them in a matter, while another will get financial value through a contract you help negotiate for their business. You can initially communicate value to clients through your marketing campaigns and onboarding process, but ideally, those should be a means to attract your ideal clients so you don’t have to defend the pricing for your services.
Since value is dependent on context, it means your client’s price should depend on context. Ask yourself how your clients are benefiting from their relationship with you and do your best to understand the value of those benefits. Your pricing also reflects your mission and values, so you want to make sure the numbers you charge work for you. As you do more work for clients, you’ll start to have a clearer idea of what to charge for your services. But how you bill your clients is just as important as how much you bill them.
Types of Fee Agreements and Structures
Hourly billing is what most people think of when they think of attorney fees. However, this way of law firm pricing & fees is becoming antiquated and not as client-friendly. As technology progresses, clients expect more transparency and predictability in pricing from their attorneys. With hourly billing, clients may feel anxious about their legal bill because they don’t know what the final number will be. They could feel like the value they receive from your services is less than what they paid. Worse, your clients may view hourly rates as an incentive for you to be inefficient and take your time with their matters, causing distrust in your relationship with clients. Clients don’t really want to pay for your time, they want to pay for your help and the value you give them.
Hourly rates aren’t the best option for attorneys either. Hourly rates don’t allow your time to scale, and limit your time for other matters and opportunities. Charging an hourly rate means that your earnings will always be capped by your time. If you still want or need to charge by the hour, your rate should be based on a mix of the following:
- Your expertise in the subject;
- Competitive rates in your jurisdiction;
- The type of case and matter; and
- The type of client
You can also use our hourly rate calculator to help you find the rate you need to charge.
Most of the time, it will be better for you and your client to go with an alternative pricing model.
Alternative Law Firm Pricing Models
Alternative pricing models shift some risk and unpredictability off clients and onto you. Some alternative law firm pricing models you’re already familiar with, like flat fees, contingency agreements, and retainer arrangements. We’ll go over a few others that you may not be familiar with to introduce you to new ways you can bill for your services.
Flat fees, also known as fixed fees, are pre-arranged total fees that are paid upfront before you complete work for a particular legal matter. For example, for standard DUI cases, drafting wills, bankruptcy, or other form based matters, flat fees may be attractive for both the client and the attorney because these sorts of matters usually have no surprises and no fee collection hassles.
Another benefit to a flat fee arrangement is that they reward your experience and efficiency. If you’re especially experienced in a matter, you’re able to maximize your time and your clients will be happy to have their matter resolved efficiently. However, if you’re new to matters or to working under the flat rate model, it may be difficult to determine what amount you should charge beforehand. There could be a potential for reduced or negative profit margins if you’re charging with no previous experience guiding your pricing. However, as you do more work under this model, you’ll develop a better sense of what to charge and how to maximize your time.
If you prefer not to charge a flat fee for an entire project, you can charge flat fees per project phase or time period. You can break down a matter into smaller pieces, charging a fixed rate for each piece. This allows for greater flexibility and reevaluation as the matter progresses so both you and your client won’t feel cheated. This option is attractive for long-term project or litigation, but won’t be viable for all matters.
A capped fee is similar to the hourly rate. In this pricing structure, a client will pay by the hour, but the number of hours you will work is capped at a predetermined limit. The client will pay either after the work is completed or when the capped time is met. The benefit to this structure is that clients will have peace of mind knowing they won’t pay more than a certain amount, but still has all the detriments of charging by the hour. Plus, if a client expects to have a matter completed within the pre-set hours and the matter isn’t, both you and your client may be disappointed.
Also known as a sliding-scale fee, this law firm pricing model is based on a client’s ability to pay, which is often determined by income and/or family size as taken from the Federal Poverty Guidelines. This means that what each client pays, whether hourly or as a flat rate, will be determined by their income, rather than you just charging your typical rate. So those with lower incomes will pay a lower fee, giving those clients who need legal services greater access to otherwise out-of-reach attorneys.
Unbundled legal services is when clients hire you to perform a specific task or to represent them for only a single process or issue rather than an entire legal matter. What you charge will vary depending on what the client is asking you to do, and you’ll have the option to charge hourly or a flat rate.
It is a little more difficult to determine pricing for unbundled legal services, but you can check rates your area to see what other attorneys are charging.
Another derivative of the hourly rate, retainers are a lump sum clients pay up front from which you will deduct your hourly fees. Retainers are also used to secure your availability as an attorney. When implementing retainer agreements, you will consider the work that needs to be completed or the opportunities lost because of the commitment of your availability.
Contingency pricing is typically used in litigation, insurance, personal injury, or medical malpractice cases. This is where you take a certain percentage of the monetary settlement or damages your client receives, usually 30%-40%.
This is a good option for clients who cannot pay upfront, but could lead to you and your clients having different goals. Your client may want to take a matter to trial, while you may feel like you want to settle to ensure your payment. Working on contingency could also lead to clients getting paid less than the attorneys after court and attorney’s fees are taken out of the total amount. If you decide to go with a contingency agreement with your clients, you should be confident the case will result in settlement or a court award.
A note on contingency fees: ABA Model Rule 1.5(d) prohibits the use of contingency fees for divorce cases where the fee is contingent on securing the divorce or getting an amount of alimony, support, or property and criminal cases. You’ll want to check with your state’s ethics rules to make sure certain cases can be charged on contingency.
A legal subscription plan is where you have your services or a bundle of services available for a fixed law firm pricing on a recurring basis. It’s like Netflix, but legal services. Having legal subscription plans can create a steady stream of revenue for your law firm and help clients help themselves. Having a legal subscription plan is similar to being on retainer, but without the same constraints to your time.
The key to creating legal subscription plans is to productize your work. Think of ways you can turn your services into products. For example, you could have a set of online forms with direction clients can purchase at a flat rate for certain things, like setting up a business entity. If you’re feeling really savvy you can automate the entire process for clients so the drafting work is done automatically for them.
You can also set up legal subscription plans where you can offer businesses and individuals on-call legal advice on your practice areas. For example, you can set up a legal subscription service for individuals who want to represent themselves in family matters. You can be on call for them when they need help or guidance on certain issues. Or you can have a subscription service for business clients where you charge $1000/month for monthly document review, unlimited letters and consultations, IP monitoring, and ongoing monitoring of a client’s matter. This not only gives your clients peace of mind that they’re compliant, but if they do need help on a matter beyond what your subscription offers, you’ll already have a lot of the information you’ll need to work effectively.
While there are benefits to legal subscription plans, you will have to work a little harder to keep it ethical and be mindful of any conflicts of interest.
How to Calculate Legal Fees and Manage Other Legal Costs and Expenses
When determining what pricing structures you want to implement and how much to charge, in order to make money your revenue must be higher than your law firm expenses.
It’s easier to work backwards on this. Say you want to earn $80,000 a year. First, determine what the total cost of your firm’s operating is by tallying expenses like monthly rent, phone, internet, your software subscriptions, research databases, marketing expenses, virtual receptionists, office supplies, etc for the year. If these yearly operating expenses total $25,000, or about $2084 per month, you will need to gross at least $105,000 a year, or $8,750 a month.
You’ll want to get an idea of how much you pay for each client. If your monthly expenses are $2084 per month and you serve 12 clients that month, your average expenses to help those clients is $174 per client, so your baseline price point would have to be above $174 for each client to generate a profit that month.
How you reach your goal amount and beyond will depend on your services offered. Maybe you can find 5 estate planning clients and charge them a flat rate of $2500 for estate planning services that month. Maybe some family law cases will bring in $200 an hour, or you have 3 new legal subscription clients at $1200 per month. Maybe you can charge for quick turn-around services for cease-and-desist letters or for comprehensive consultations.
With all the different pricing structures out there, you can have a little mix of everything to create what works best for you and your practice. Just remember to be open to different arrangements. While you may have a preference on how you want to price your legal services, sometimes a different pricing structure would work better for a certain client.
The Future of Legal Law Firm Pricing and Fees
Legal services and law firm pricing is a matter of being client centric. As you work with and help clients, you want to make your clients feel good by not only doing good work, but by making your clients feel like they’re getting more value than what they’re paying for.
If you’re not sure if your clients are happy with your services or what you’re charging, ask them. Talk to your clients, show them exactly what you did and how you did it while getting feedback from them. The more you learn from your clients, the better you’ll be at providing excellent client service and setting your fees.
Still have questions about pricing and fees for your practice? Join Lawyerist Insider, a community of innovative and entrepreneurial small-firm lawyers. If you’re interested in getting a powerful snapshot of your firm’s strengths and weaknesses, take the Small Firm Scorecard to see where you can improve your practice.