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In this month's Addendum...
- All Business: How to set fees in a small-firm practice
- Starting Out: Seven considerations for struggling solos
- The Marketplace: Small firms deliver big client value
- Technology Tips: Encryption and password insights
- CBA PracticeLink: Support staff for solo practices
- The CBA and You: Benefits for self-employed lawyers
Editor
Jordan Furlong
Contributors
David J. Bilinsky
Susan Cartier Liebel
Carolyn Elefant
Marcie L. Shunk |
Addendum is published by National magazine, the official magazine of the Canadian Bar Association. The views expressed in the articles contained herein are solely the views of the authors, and do not necessarily represent the views of the Canadian Bar Association.
© Copyright 2008. Canadian Bar Association. |
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Name your price: how to set and discuss fees in a solo or small-firm practice
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.
“To be competitive in
the legal services marketplace, you must properly price those services based upon both your demographic area and the practice area.”
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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 that 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 lawyer because she is no longer tied to the clock. Regardless, this is a more complex pricing structure (imagine a seasoned chef whose recipe is a “pinch of this” a “smidgeon of that.” The operative word is “seasoned.”) So, for the purposes of this newsletter, we will primarily discuss the traditional methods and models of setting fees.
If you ask a 20-year family law veteran the going rate in your province’s major city and she replies “$450 per hour against a $20,000 retainer,” will that fly for a two-year lawyer in your state’s smaller towns? Probably not. The most efficient way to learn what the market can sustain is to talk to other lawyers 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 favour; 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.
You need to realize that generally, it is not the fee that will dissuade a client from hiring you. It is failure to provide payment terms the client can live with. If you are uncomfortable charging the same as those who are more “experienced,” there is no harm reducing your hourly or flat fee marginally. But it should be within a reasonable range of the going rate, so as to not trigger the negative perceptions stated above.
Conveying to the client the cost of your services with confidence is the other component. Clients, as a whole, are market-savvy consumers and are generally aware of the legal costs for services. How many people have you met who are shocked a personal injury lawyer takes a contingency fee of one third on a case? Not many.
Most people know hourly fees are in the $150 - $250 ballpark, based upon where you may live. So, if you present a fee of $100 per hour without a brilliant marketing reason that benefits the client, chances are the client will be suspicious. If you present an hourly fee of $200 and the client tries to negotiate your fee downwards and you say, “Okay,” now the client feels you were overcharging him to begin with and will distrust you.
Think of it this way. You own a convenience store. A customer brings to the counter a package of Twinkies. The price rings up at $.69. The customer knows the price is $.69 because it is marked on the package. He asks you if you will sell it at $.49. You would easily say, “The price is $.69.” He says, “But I only have $.49.” You would have no problem saying: “I’m sorry. But that is the price. The package is clearly marked $.69.” The customer says, “But I can buy these Twinkies for $.49 at the convenience store down the street.” Would you then lower the price of the Twinkies in order to keep his business, with the future hope he will come back to buy more Twinkies even though you will take a $.20 loss? I think you would tell him very nicely to go buy his Twinkies down the street and feel no loss for not having sold the Twinkies to him at the discounted rate.
However, when it comes to sticking to our guns about the cost of our legal services, most starting out (and some of us who have been practising for years) can’t seem to recognize that even though the price is not stamped on our foreheads, we still have a relatively fixed value and must convey that with the same confidence to our clients.
The reality is if the convenience store owner sold the Twinkies for $.49, the customer would have felt he pulled one over on the owner, told all his buddies the guy was a sucker and to not pay more than $.49 for Twinkies at that convenience store. (I assure you if the store owner now tried to charge $.69, customers would say, “but you only charged so and so $.49.”) Pretty soon, customers would start negotiating the price down for other products, too. Old customers would feel taken advantage of. Well, you get the gist of it. It’s a race to the bottom.
If, however, you have a marketing strategy where you profit at $.49 and your goal is to have everyone coming to you to purchase at $.49 and the Twinkies are priced at $.49 from the start, then by all means, do it and don’t worry if everyone else is charging $.69.
Never negotiate the fee. Convey those fees with confidence because you know you are worth it. Offer terms of payment if appropriate, but do not get in the habit of extending “credit.” An IOU never put food in your children’s mouths, filled your gas tank or paid your student loan.
Most new lawyers choke at the thought of quoting rates. They envision a client will laugh at them for saying, “My fee is $150 per hour.” They’ve even been taught not to believe they can practise law, never mind collect $150 per hour. The truth is, if a client wants to hire you to represent them in a legal matter, they are telling you they believe in your skills. They have confidence in your ability to get the job done. Now, you need to recognize it, too.
“Others base their true judgments not just on what they think we can do, but on what they think we think we can do. In other words, the people around you will most likely mirror your feelings — showing you fear when you show fear, and confidence when you demonstrate confidence.” — David Niven, Ph.D.
It is critical that you project confidence about your ability to serve your clients. It is just as critical that you project confidence in the appropriateness of your fees. Your confidence begets client confidence, and client confidence helps them to write you a cheque.
Homework Assignment
- Find out the going rate for legal services in your practice areas.
- When speaking with those lawyers, factor in years of experience, location, reputation and your gut instincts to ballpark where you should start your pricing.
- Determine your value: this is a combination of pricing strategy to learn, break even, and turn a profit, all within the context of your overall marketing strategy. (Yes, everyone wants to make a profit immediately. However, your business plan may be such that you are pacing your growth as you cultivate your ideal client base and becoming more competent. There are numerous variables that will influence how you grow.)
- Don’t feel compelled to take on all clients who ask for your services. Learn to determine which clients will help you grow your business in the direction you want to grow, and refer out those who will not.
- Develop a list of lawyers you will be happy to refer business to if a prospective client can’t meet your payment terms.
Susan Cartier Liebel of Fairfield, Connecticut, is a U.S. coach and consultant, owner of Build A Solo Practice, LLC, and author of the popular blawg of the same name. This article was excerpted from Solo Practice University E-Zine, a free newsletter for law students, new lawyers and big law defectors (RSS feed).
Don’t throw in the towel yet: seven points for a struggling solo to consider
By the end of your first or second year, you may be struggling financially, you may be saddled with clients who don’t pay, you may have an unproductive assistant you’re reluctant to fire, and you may be feeling like a failure because you haven’t been able to make your firm work. At what point do you cut your losses and give up?
A few thoughts to consider before throwing in the towel:
1. Share your difficulty.
Though you may feel embarrassed or ashamed, share your struggles with other practitioners. If you can’t face colleagues, set up a consultation with your law society’s law practice management advisor or send an anonymous SOS to a listserv.
The other day, an anonymous solo posted a “help-me-save-my-practice” e-mail to the solosez listserv. Within hours, list members inundated him with suggestions, encouragement, and — most helpful —marketing and management ideas he had never considered. A week later, he reported having implemented some of the changes, and the tone of his follow-up post was decidedly upbeat. In a few months, I fully expect this solo to report that he’s turned his business around.
2. Evaluate what’s working and what’s not.
Look at the cases you’ve handled during the past year. If you simply haven’t found enough clients to pay the bills and you’re worried about cash flow, consider a temporary contract assignment or other “fast cash” options.
On the other hand, if you’re tied up with clients who’ve promised to pay and haven’t, drop the worst offenders rather than continuing to work without pay. Working for free is demoralizing and saps your will to market your practice. When you fire non-paying clients, your morale will improve and you’ll have more time to engage in marketing to build your practice.
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You had the guts to take a leap that few lawyers are willing to take, and you gave it your best shot. |
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Sometimes, it’s a not lack of clients that account for financial struggles: it’s too much overhead. Scrutinize your costs closely: are you paying for Class A office space when you could save several hundred dollars a month in a less fancy building? Is a big chunk of revenue going to staff salaries without return on investment? For example, if an associate’s salary and benefits cost you $50,000 but the associate only generates $35,000 in revenues, you’re losing money.
Many lawyers are reluctant to downsize because they view their fancy building and staff as a symbol of success. And often, lawyers are too kind-hearted for their own good, and feel badly about laying off employees, even if it’s an economic necessity. At junctures like this, you must evaluate your expenditures from a purely financial perspective, without allowing your personal feelings about status or helping others to intervene. If you can’t make these changes on your own, consult with a practice-management consultant for an objective viewpoint.
3. Have you tried everything?
Perhaps you’ve shrugged aside certain marketing options, thinking “that won’t work for me.” Is this a logical evaluation of a particular marketing technique, or is it an excuse to avoid techniques (like cold calling) that make you uncomfortable, or that involve longer-term commitment (like blogging) than taking out an ad? If this is about avoidance, it’s time to own up and get moving. The future of your firm is on the line; now’s not the time for timidity or procrastination.
4. Set up a plan.
A failing practice takes a psychological toll. You feel trapped or stuck in a rut, powerless to make any changes. To break through, create a list of actions to turn things around, such as making some cold calls or touching base with a colleague. If you can’t muster up the nerve for daily phone calls, then start by sending out e-mails or attending a networking event. Just do something each day. Your actions will help will go a long way towards getting your practice on the right track.
5. Give yourself time.
Realize that your business will generally ebb and flow until you hit your stride, which may not happen until your third year of practice. So unless you’re truly hemorrhaging cash and risk bankruptcy, keep plugging away.
6. Beware the hard sell.
When business is bad, you’re particularly vulnerable from consultants and referral services. If you genuinely believe that a consultant can benefit your practice, seek low-cost options. Some consultants offer reasonable group rates, while others will charge a flat fee of a few hundred dollars for a practice tune-up.
As for for-fee referral services, try to negotiate a limited trial period of two to three months, rather than locking yourself in for a year. The last thing you need now is the added stress of an extra few hundred dollars a month for a referral service that doesn’t generate any clients.
7. You haven’t failed.
Perhaps you’ve reached a point where despite your best efforts, you can’t find enough business to sustain your practice. Or maybe you found work, but you’re not earning enough to support your family. You haven’t failed.
You had the guts to take a leap that few lawyers are willing to take, and you gave it your best shot. Along the way, you taught yourself new skills that you never learned in law school or at your job — drafting a complaint, taking depositions, arguing motions, negotiating contracts. You served clients and solved their problems, perhaps even changed their lives or improved their opinion of lawyers. And you created a something — a law firm — out of thin air, with your law degree and your own two hands.
Perhaps your firm did not survive, but no one can ever take away what you accomplished. Everything you learned in the process of creating and running a law firm will stay with you and serve you moving forward, either in a career in law or another profession. That doesn’t sound like failure to me.
Carolyn Elefant is a sole practitioner in Washington, D.C, who specializes in energy regulation work. She is the owner and operator of MyShingle.com, a leading blog for sole practitioners, and is the author of the new book Solo By Choice: How to Be the Lawyer You Always Wanted to Be, from which this article is excerpted.
Welcome to the age of the smaller firm
Small firms are making it big — with clients, that is. Nearly 40% of the law firms that top the short lists of the world’s largest organizations are outside of the top 200 law firms, up from under 20% just four years ago. Here’s what the little guys are doing to gain this huge advantage — and how you can leverage your own strengths into big rewards.
“Today, the tides are changing for law firms. Smaller and mid-sized firms are establishing themselves as formidable competitors for big-ticket business and shaking up law firm rosters at the world’s largest organizations.”
| Virtually every corporate counsel has a short list — three to five law firms they know they can rely on and whom they call most frequently when new matters arise. Historically, the 100 largest law firms have dominated the short lists of large and Fortune 1000 organizations. In fact, just over 80 large law firms comprised more than 60% of the collective short list — until now.
Today, the tides are changing for law firms. Smaller and mid-sized firms are establishing themselves as formidable competitors for big-ticket business and shaking up law firm rosters at the world’s largest organizations.
BTI Consulting’s research draws on more than 1,600 client interviews conducted over the span of seven years. This year’s analysis is based on more than 250 interviews with corporate counsel at large and Fortune 1000 organizations. These interviews include open-ended, unstructured methods enabling the market to define clients’ needs, priorities and law firm utilization according to their own understanding and perceptions.
Between 2004 and 2007, the number of smaller law firms (defined for the purposes of this article as those outside the top 200 in terms of revenue) listed by major corporate clients as among their first tier doubled from 71 to 148. Smaller law firms boosted their penetration in clients’ collective short lists during that same time frame, climbing from 18.4% to 38.3% of total mentions.
Today, small and mid-sized firms account for nearly two of three law firms most frequently considered by large and Fortune 1000 organizations. This marks a dramatic shift in industry dynamics and sends a clear message about which approaches are working with clients — and which aren’t.
Client service is king.
Client service is one of the most powerful advantages smaller law firms are using to win over large clients. In an environment rampant with dissatisfaction (just 34.6% of corporate counsel recommend their primary law firm first), smaller firms are distinguishing themselves through superior communication, client focus and value.
Each year, BTI asks more than 250 corporate counsel to tell us which law firms stand out as the absolute best in 17 activities that are critical to the law firm-client relationship. Smaller law firms consistently outperform their super-sized peers in the four activities that truly differentiate a law firm in the eyes of clients:
- Client focus
- Understanding the client’s business
- Providing value for the dollar
- Commitment to help
Smaller law firms also stand out in the two problem-solving skills that are essential to establishing solid relationships: handling problems and dealing with unexpected changes.
Moreover, smaller law firms have raised their profile in several realms historically reserved for larger law firms, including breadth of services and bringing together national resources (though they still lag their bigger competitors).
The client service advantages offered by many smaller law firms are winning the kudos — and dollars — of in-house counsel at top companies. Corporate counsel applaud the attention they get from smaller firms, as well as the feeling that their law firm is truly dedicated to helping them achieve their business goals.
Equally complimentary to the smaller firms, corporate counsel are growing more impressed by the legal skills and expertise they can find outside of top law firms. Several comment that the exodus of small groups of partners from top firms has created a stellar collection of pint-sized firms with extraordinary prowess.
These “brilliant lawyers,” they say, offer a unique combination of top-notch legal skills, big-firm expertise and unparalleled value. They are strong advisors and well-positioned for significant, high-risk matters. Of course, these smaller firms are seldom awarded mega-cases. Yet they are increasingly gaining access to premium work and prized matters that traditionally were the purview of only the most well-known competitors.
Niche law firms fill a need.
Occasionally overlapping with the “spin-offs” is a collection of niche law firms whose targeted strategies are paying off. Corporate counsel are beginning to distinguish a group of smaller firms as the thought-leading experts in a particular field of expertise, industry or region. These self-proclaimed limited providers are building reputations and positioning themselves as the go-to firm for certain types of matters.
Internally, a niche law firm’s strategy hinges on building core competency. Their approach is singular and focused. This works to their advantage when trying to boost awareness in a crowded marketplace. A targeted message helps clients to differentiate smaller law firms from undifferentiated competitors.
In addition, many niche firms establish templates or systematic approaches that enable them to leverage economies of scale, such as in patent applications or certain regulatory filings. These firms are transforming what some clients perceive as commodity work into the backbone of their business. Streamlined processes enable savvy niche providers to make big profit margins on lower rate work. This, along with many other advantages of smaller law firms, translates into greater value for corporate counsel, which brings us to the final arena where smaller firms outrank their larger peers in the eyes of clients.
Value: It’s not low rates
A component of client service, value earns independent distinction as an advantage for many smaller firms. Nearly half of the law firms corporate counsel recognize as best at providing value for the dollar are outside of the top 200. Yet it is not simply a matter of rates that places these firms at the top of the value list. Rather, corporate counsel laud smaller firms for their:
- practical approach
- superb communications and updates
- wise staffing decisions
- keen sense of risk and reward
- talent at articulating business stakes in client-friendly terms
All of these drive value in the eyes of corporate counsel.
This exceptional ability to deliver high value is one of the factors that helped vault smaller firms to the forefront of client short lists. It is also one that, in conjunction with client service, will help keep them there.
Law firms that deliver value are, according to corporate counsel, a hot commodity. Thirty percent of corporate counsel report that finding a law firm that delivers better value is one of their top unmet needs for 2008. To the extent that smaller law firms can continue to distinguish themselves in this arena, they will be well-positioned to maintain their current advantage over big-name competition.
The advantages of smaller law firms are wide and varied, according to the feedback of hundreds of clients. Yet each of them finds their strength in a single place: differentiation.
Whereas many of the large, national law firms have grown increasingly similar to one another in their breadth, scope and reputation, smaller law firms have managed to represent unique characteristics that help them stand out in the eyes of corporate counsel. We can all learn from their ascent into the short lists of the world’s largest companies.
Marcie L. Shunk is a principal with The BTI Consulting Group in Wellesley, MA. She oversees the continuing survey of top executives on client needs, expectations and satisfaction. Reprinted with permission of The Complete Lawyer, where it first appeared.
Security alert: what you need to know about passwords and encryption
One of the more dreadful things for a lawyer to discover is that their electronic device — desktop computer, laptop, Blackberry, PDA, portable hard drive or USB flash drive —has gone missing, taking confidential client information with it.
A family lawyer’s laptop could contain reams of financial disclosure documents containing bank accounts and deposits, SINs, investments and other highly personal information. A corporate lawyer’s Blackberry could carry details of a proposed merger or corporate purchase: a disastrous leak. Indeed, there are few areas of the law where lawyers have not been entrusted with the safekeeping of their clients’ secrets as a function of providing legal advice.
We advise lawyers who have suffered a theft of an electronic device containing client information to inform those clients as soon as possible that their confidential information may have been compromised. There is a real possibility that the disclosure of client personal information could result in “identity theft” for the client — resulting in false credit cards issued in their name, the unauthorized access to their bank or financial accounts and other sources of funds and the like. Clients are entitled to take such action as they deem necessary to protect their private affairs as a result of the possible disclosure resulting from the theft or “disappearance.”
On the other hand, if the lawyer could tell those clients that all the information on that stolen computer had been encrypted using a “whole disk encryption” application — imagine the reassurance felt by everyone concerned! I emphasize “all,” because there are certainly ways to encrypt single files and discrete folders on computers. However, in the words of Bruce Schneier, founder and CTO of BT Counterpane Security:
The reason you encrypt your entire disk, and not just key files, is so you don’t have to worry about swap files, temp files, hibernation files, erased files, browser cookies or whatever. You don’t need to enforce a complex policy about which files are important enough to be encrypted. And you have an easy answer to your boss or to the press if the computer is stolen: no problem; the laptop is encrypted.
Whole disk encryption applications typically extend to all removable and portable media such as USB flash drives, portable hard drives and other removable media. (Note that this is not a solution for files that have been emailed to other computers, PDAs or Blackberries, which are typically sent “clean” or unencrypted. ) These whole-file encryption applications work in the background and to the user, they are transparent.
They work on both Mac and Windows machines. Typically, they also incorporate secure file deletion algorithms, meaning that once a file is deleted, it is well and truly gone. They can be established as an enterprise solution, ensuring that if any computer is stolen — within or outside the office — the information contained therein is secure and protected. They can establish multiple levels of security.
It is gratifying to see that PCWorld, in an article posted April 6, 2008 titled “Are Extra Laptop Features Worth It?” stated:
Our verdict: For any industry in which security is paramount or even legally obligated (the medical, legal, and governmental fields, for starters), the additional cost of hardware encryption is minuscule when weighed against the technology’s ease of use and its role in avoidance of liability.
In my opinion, all lawyers should be looking at whole-disk encryption for their portable devices (laptops, flash drives, etc.) and should be considering it for their office networks as well. There have been instances when desktop computers have been stolen, even in broad daylight, from lawyers’ offices.
Why we haven’t seen more secure laptops out in the market? I think the answer is that they are just starting to appear.
Passwords
Regarding passwords, there are many rules to follow.
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Change your passwords regularly. Don’t use the same password for everything! And if you suspect that a password has or may have been compromised, change it — now! |
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First, since password-cracking programs use dictionary words, birthdates and common names, never use these as passwords. Needless to say, don’t use the word “password,” and change all default passwords immediately. Don’t post the password on a sticky note on the monitor!
If you need to write them down, do so — but in a way that is a bit cryptographic ... reverse the numbers or transpose the 7th and 8th character and the like. Something that only you would know, and which is not obvious to anyone reading it — for example, you can write down a character in your note that would not appear in your actual password.
Or, have a character/number sequence memorized that you append to the written password that only you would know. Use symbols, uppercase letters, lowercase letters and numbers. Make sure it isn’t something that has been used before (e.g., R2D2). And make it fairly long, at least six characters.
Needless to say, don’t tell anyone your passwords! Change your passwords regularly. Don’t use the same password for everything! And if you suspect that a password has or may have been compromised, change it — now!
Don’t save your passwords in a Word or WordPerfect or Excel file; these can be found easily. Instead, acquire one of the automatic password managers such as:
These applications will record your passwords and will also record your common form info (name, address etc) and populate web forms for you on the fly. Some of them even allow you to store your passwords on a USB flash drive, so you can carry them with you.
Another way to protect yourself is to acquire a USB security key. It plugs into the USB port and the computer is disabled without it. If you enable the encrypted file system in Windows together with the USB key, then the data on your computer is unreadable to anyone without the USB key. (Perhaps needless to say, don’t travel with the USB key in the same luggage as the computer.)
At the office, we have RSA key fob tokens that have a six-digit number display that changes every minute. To log onto the computer, you need a four-digit code in addition to the six-digit number on the RSA token. Only you know that four-digit code, so even if someone manages to steal both the laptop and the RSA token, they would have to know or guess the extra four-digit code and how it is used, together with the token to gain access to your computer — which only increases the security.
David J. Bilinsky, Esq. is an independent consultant as well as the Practice Management Advisor for the Law Society of British Columbia. He is a Fellow of the College of Law Practice Management and the Editor-in-Chief of ABA’s Law Practice Magazine. His consulting services focus on enhancing law firm profitability, strategic business planning and the thoughtful application of technology to the practice of law. His blog Thoughtful Law was the recipient of two CLawBie Awards in 2007.
CBA continues push for self-employed benefit reform
As sole practitioners and self-employed lawyers know, special benefits under the federal Employment Insurance (EI) system are available to employees. EI benefits are not available for self-employed persons, meaning that sole practitioners and self-employed lawyers cannot claim the same maternity and parental benefits that employed lawyers can.
This discriminates against the self-employed and in particular, reduces women’s ability to start or sustain a solo law practice. The Quebec government recently enacted a program to give maternity and parental benefits to all working parents, under the Quebec Parental Insurance Plan (QPIP).
The CBA has been actively working to change the law in this area across the country for some years now. Led by the Standing Committee on Equity, the association is calling for the extension of maternity and parental leave benefits to self-employed persons.
Last spring, the Equity Committee, along with a number of other groups representing self-employed workers, met with senior ministerial staff at Human Resources and Social Development Canada on this issue. The CBA has also commissioned economic research on the cost of extending parental benefits to the self-employed under EI and under a national program structured like the QPIP program. The Quebec experience shows that the cost is very reasonable.
The CBA will follow up with Human Resources Minister Solberg to report on the results of the research. Further advocacy work with strategic partners will also be implemented in the upcoming months.
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