Young business woman with sign saying "pricing strategy"

Setting your hourly billing rate or quoting flat fees is a big challenge when you are starting out, launching as a solo, or re-vamping your practice. Whichever method you choose for determining your rate, keep one overriding principle in mind: you are a professional, and your prices should reflect the value that you bring to your clients.

Consider Other Professionals You Pay

Think of all the people you pay to do work for you. Even if you’re a hardcore DIYer, there must be things you pay to have done. Perhaps you regularly pay someone to clean your house, or wash your car, or change your oil. Those things are of great benefit to you even though you really could do them yourself.

Think bigger. Did you replace the gutters on your house or have someone else do it?  Replace your air conditioning system? Re-tile your shower? Replace your flooring? Theoretically, and certainly according to TV shows, these are all things you could do for yourself. Nevertheless, you likely find it valuable to pay a professional to do them. As a consumer, you can see the value in having someone who knows what they are doing perform a service.

The workman tiling your shower may find it simple after having tiled hundreds of showers; the gutter crew can demolish the old gutters and put up a whole new system in a day when it would take you weeks; two skilled workers with the right tools can replace a furnace and air conditioning system in a day; and the rate at which flooring professionals rip out and replace carpet and wood is staggering. When you prepare to pay these professionals, you don’t ask them how easy it was for them to do the work and discount accordingly. The simplicity of delivery by the professional does not determine the reasonable price. Price is determined by the value provided to the consumer.

Price Your Services Accordingly

As the purveyor of your own legal services, you can easily get wrapped up in evaluating the difficulty you find in delivering the service, but this is the wrong angle from which to look at it. Consider instead the benefit you are providing to your clients, just as you look at the benefit you get from the hardwood flooring expert.

What it comes down to is that your fees must reflect the professional that you are and the quality of the services you are rendering. Value to the client, not your difficulty in performing, is the key.

Resources For Determining Your Value

It’s all well and good to view your fees from the client’s perspective, but when it comes to putting numbers on paper (or on your website), it gets dicey. How do you know what your services are worth? Especially if you are just starting out or modifying your practice to serve different clients or provide different service lines, it can be tough to know what is reasonable.

Use Your Competition as a Guide

You can look at your competition to get an idea of what others are charging. Getting this information is an imperfect science since many lawyers do not give transparent fee information on their websites. You can ask them, and they may tell you. The imperfection of the information underscores that this is just a guidepost; your competition’s rates should not be the determining factor for you. Maybe everyone else is over- or under-charging.

Look at Services You’ve Consumed

Consider legal services you’ve needed: how much have you paid? Perhaps the services are difficult to equate to one another, but you have likely been a consumer of legal services at some point in the past, and what you were willing (or required) to pay is relevant to your own fees.

Hourly Reality

If you have an hourly rate you are comfortable charging, test its reasonableness. Determine how much billable work you would need each month to make ends meet. Is it reasonable to expect to get that much work? On the flip side, do a reasonable number of hours at that rate yield riches? Maybe your rate needs adjustment to be realistic.

Don’t Forget Flat Fees

Before deciding to charge that hourly rate, consider charging flat fees instead. There is a definite trend in the industry toward flat fees, so don’t ignore this approach without seriously evaluating it. Of course, you still have to determine what that fee should be.

The idea behind flat fees, from the lawyer’s perspective, is that over time you will become more efficient at completing your routine tasks, and if you were to charge on an hourly basis for those tasks, you will eventually begin losing money. A task for which you first earned $1000 will become a $500 task when you are good at it; that defeats the incentive to be better and faster at what you do. You should charge a flat $1000 for that service, and soon you can do it twice in the same number of hours and earn $2000.

One place to begin with establishing flat fees is by estimating the amount of time specific tasks will take you the first few times, and multiply that estimated number of hours by the hourly rate you are thinking of charging. That gives you a sense of what is reasonable from your side; take that number and flip your perspective to the client’s to think about whether a client would be willing to pay it. Perhaps the client would be willing to pay more, but this is a starting point.

Before I converted to flat fees, I sat down with a seasoned criminal defense lawyer who has never charged any other way. He explained to me that “you win some, you lose some,” with flat fees—meaning that sometimes you end up with a crazy high hourly rate at the conclusion of the case, and other times you end up working for a pittance. But, it evens out over time.

Your Fees Aren’t Forever

Finally, remember that however you begin with your fees, they are not set in stone. You can always revisit and revise your fee structure (keeping your state’s ethics rules in mind). Hourly may work best for you, or maybe you want to try out flat. You may price yourself out of the market or underprice the first time. Give your first choice a run, and see if it works for you; change it as required, but always remember that you are a professional and you should charge as such.

One Comment

  1. Rob Knowsley says:

    Excellent points made Megan many thanks!

    Could I add for your readers a suggestion that they make a habit of reading everything practical they can get their hands on regarding the art of services pricing, and especially the psychology aspects.

    An enormous level of fees is left on the table every day around the world because the lawyers involved do not know how to communicate value clearly to “this client in these circumstances”, and use basic psychology to determine better the client’s willingness to pay for this engagement.

    Small gains in revenues thus achieved are guaranteed to impact profit heavily, and underpin the financial health of the firm and its stakeholders.

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