How to Adjust Your Fees Without Losing Clients
By Amy Jo Ehman
Imagine the dream client. Upon receiving your bill for legal services, he informs you with all sincerity that you are not charging enough. It’s a sure sign that it’s time to raise your fees.
Unfortunately, the writing is not usually so clearly on the wall. When is it appropriate to raise your fees, by how much, and how do you inform your clients in a way that won’t send them huffing out the door? How do you assess the marketplace to determine what you’re worth? How can you use fee increases strategically, in order to attract the right clients and build the type of legal practice that you want?
Like many things in life, raising fees is more an intuitive art than an exact science. There are some basic factors to consider, including ethical considerations and the business bottom line. But it takes experience to assess the ultimate benchmark – Is your client getting value for the dollar with every incremental increase?
A Tale of Two Clients
Raymond Lee had a dream client early in his law career. "I remember him fondly. When I started a matter for him, he always encouraged me to send the bill right away and I got accustomed to doing that," says Lee, of Lee and Kong, a corporate commercial and real estate firm in Calgary. "When I charged too little, he said, ‘Why don’t you charge more?’”
"I didn’t want to charge much more because I liked him so much, but just to please him I charged a little bit more!"
On the opposite end of the spectrum, Lee faced the ire of a dissatisfied client who claimed the fee was too high.
"That happened early in my career and I didn’t like it," he says. "You get one of those cases and then you’re shy on charging anything."
Years later, Lee is more savvy when it comes to setting and raising his fees. Now, he reviews his fees on an annual basis, and informs his clients up front when an increase will take place. After 25 years practicing law, he’s also gained the confidence to know what he’s worth.
"When should lawyers consider raising their fees? When they feel they deserve more money, and if the client is willing to pay it," he says. "I never lost a client for raising fees."
Assessing the Marketplace
How do you know when you deserve more? What are other lawyers charging? And what are clients willing to pay? Often, it’s a matter of doing some homework to assess what others are charging – and paying – in your community.
There are several sources of information concerning the ‘going rates’ for legal services. Informative – though perhaps not entirely reliable – is the local scuttlebut network. What’s the talk in legal circles? Who charged what for which service? Informally, ask other lawyers with similar levels of experience what they are charging for similar work. Read the results of cases reviewed by the taxing officer in your jurisdiction. You will probably discover there is no single rate for any type of legal service, but a range of rates based on a number of factors including: years at the bar, specialization, administrative costs, office location, and market conditions.
Larry Hurd, a solo practitioner in Calgary, recalls a situation in which he represented a co-accused in a criminal case for which he charged $500. During bargaining sessions with the Crown Prosecutor, he saw the legal file for the other accused and noticed payment receipts totaling $3,000. It didn’t take a mathematician to do the sums and see that Hurd had sold himself short.
"I started raising my fees," he says. "Sometimes clients think, This guy charges more so he must be a good lawyer."
What are your clients saying about you? Are you getting frequent referrals? Satisfied clients – and their referrals – indicate that you are in demand and may be able to charge more for the quality service you provide. Survey your existing clients – hire a marketing firm or do it yourself. After a file closes, ask the client to complete a questionnaire about their level of satisfaction: Did we get back to you as quickly as you expected? Did you
find us accessible? Did we answer your questions? Do you think you got value for your money?
"If you’re thinking about raising your rates, maybe you need to start by examining whether you’re providing the value your clients expect," says Paul McLaughlin, acting practice advisor at the Law Society of Alberta. "If you’re afraid to ask your clients if they’re happy because you’re afraid they’re unhappy, there’s a disconnect. Ideally, you want your client to say, ‘He or she is expensive but they’re worth it’."
Marketing Psychology 101
For many clients, it’s NOT about the bottom dollar. Rather, it’s about the perceived value for their dollar. In other words, these clients will probably not balk at a fee increase if they think you’re worth it. Understanding this aspect of human psychology is an important step in assessing what you’re worth – and what a client is willing to pay.
Hurd offers himself as a prime example. In the early 1980s, when he began practicing law in Calgary, he charged some of the lowest real estate and divorce rates in the city. He undercut the going rates in order to attract clients, and it worked. He was a busy young lawyer.
While he was at law school, Hurd sold used cars in the summer months. And he learned a thing or two about human psychology. He learned that it’s better to set a high price and offer a discount, than to set a low price and try to raise it later. He also learned that customers who ‘kick the tires’ – that is, those who browbeat down the price – are more demanding and higher-maintenance, reducing the profit margin on every transaction. After years of serving legal clients who ‘kicked his tires’ Hurd made a complete
about face and raised his rates.
Focusing almost exclusively on real estate, he increased his rates from a flat $300 per transaction to $800 per transaction over a period of five years. While other lawyers charge about $500 for this service, Hurd has positioned himself as one of the most expensive real estate lawyers in Calgary. Did he lose clients? Yes, he did. But he didn’t lose sleep over it. With more time to serve the clients who stayed, Hurd focused on offering more bang for their buck. In other words, he increased the level of service,
something many clients were willing for pay for.
He learned another valuable lesson selling used cars: how to humor the customer. When clients balk at his higher prices, he eases them into it with a joke. For instance, he might say: You know, if it’s not high enough, I can charge some more. He prints his rates on the back of his business card, something he learned from a top car salesman.
"I used to tell my clients that my fees are below average. Not any more. I tell my clients that my fees are above average, but I also do above average work.
"I make a lot more money since I raised my legal fees," he says. "I stay away from those clients who want everything under the sun for free. The clients who shop around for the lowest prices are usually the biggest headache."
Hurd made a few other changes at the same time. He stopped advertising in the Yellow Pages, and now relies almost exclusively on client referrals. With his phone ringing less often, he stopped employing a secretary. He now answers his own phone and keeps his own records. With both an MBA and a financial planner designation, in addition to his LLB, Hurd offers his clients added value for their dollar, a marketing tool that works.
"You must inspire the client to have confidence in you as a lawyer. If the clients like you, they will trust you. If they trust you, they will hire you. If they hire you, they will pay you," he says. "It all begins with being likeable, being friendly, and literally looking out for the client’s best interests."
He’s contemplating another rate increase. Instead of a flat rate, Hurd would like to charge a percentage of the real estate value. Just as real estate agents make a percentage of the selling price, Hurd would like to see real estate lawyers set their fee at one-percent of the transaction value. Whether this rate increase is feasible, Hurd is yet to determine. But he has no lack of confidence that he’s worth it.
Raymond Lees puts it this way: "Your ability to charge a certain fee has hardly anything to do with your ability to practice law. It has almost everything to do with marketing and your relationship with the client."
Testing the Waters
Once you have determined a fee increase is warranted, you can test the waters by presenting the rates to new potential clients, says Lee. Their feedback will help you determine if the increase is acceptable or out of the ballpark.
"If you’re charging beyond their breaking point, they’ll react in a certain manner," he says. "If they say they’re going to look for another lawyer, then you’re told your prices are too high. You can adjust your fee for the next client."
Ideally, the process of raising your fees begins long before you tell the client. Good business practice dictates that you discuss costs with the client up front, before the work begins, and put it in writing. Having established the practice of discussing money matters open and frankly, you can broach the subject again when necessary.
"The big key is communication," says Lonny Balbi, of Balbi and Company Legal Centre in Calgary, who specializes in matrimonial law. "Give the client appropriate expectations. If you tell clients that fees rise on January 1, they’ll expect it."
Put it in writing, he says, in case the client forgets: "You’re reducing your chances of conflict. If they forget about it, you can refer to your original letter."
Unfortunately, he says many lawyers lack this business acumen. "Lawyers are very good at what they do, but they are often not good business people," he says. "It’s quite easy for lawyers not to say anything about raising their hourly rates. They just do it and hope the client doesn’t notice. That’s wrong. You need to tell people."
A Checklist for Raising Your Fees
- Review your fees annually. Regular incremental adjustments will create less impact and animosity than a large increase every few years.
- Advise clients up front that fees are reviewed annually and that this may result in a fee increase. This will instill proper expectations and reduce the element of surprise.
- Inform clients of the new fee/rate structure two months before the increase takes effect.
- Always present your fee increases in writing. Although you may inform some clients in person or on the telephone, follow up with a document that can be kept on file.
- Provide the client with justifiable reasons for a fee increase. They are much more likely to calmly accept an increase that is well researched and based on market conditions and other acceptable factors (inflation, salaries, higher disbursement fees, etc).
- Analyze your client’s economic picture and assure them that a fee increase fits within their budget. This indicates your sensitivity and understanding of their unique situation.
- Do not apologize for the fee increase. If it’s reasonable, you should not feel apologetic about it.
Presenting Fee Increases to Different Client Types
There is no requirement that all clients be treated as equals in the face of an increase to your flat rate or hourly fee. How you implement the increase is up to you, but here are some considerations:
New clients: Since these clients have no history with you, you do not have to tell them your fees have recently increased. Nor do you have to wait until the annual designated rate review. New clients provide a fresh perspective to test the acceptability of the increase.
Existing clients: Despite your best efforts, some clients will not appreciate a fee increase. If you are close to completing their file, you may offer to forgo the increase for the remaining work, on the understanding that the adjusted rate would apply to future legal services.
Long term clients: No doubt, your long-term clients have increased their prices over time, and should understand the necessity of you doing the same. But, if their budgets can’t handle it, you may find other ways to economize and reduce the requirement on your time. For instance, your long-term knowledge of their file may lead you to suggest ways of transferring some administrative duties from your office to theirs.
Kick-the-tire clients: Raising your rates may have the added benefit of weeding out the bargain-hunters who are more trouble than they’re worth.
What if the Client Walks?
Despite your careful analysis and implementation, some clients will choose to find another less expensive lawyer. But experienced lawyers say the risk is not as great – or as troubling – as one might imagine. Reducing the number of clients will reduce your workload, giving you more time to dedicate to each file. Increasing the level of service justifies the rate increase. As a result, you have fewer clients but you make more money.
Ideally, there’s also more time for family and personal pursuits as well.
The onus is on the clients to weigh the increased value (at an extra cost) against the cost of starting over with a new lawyer (at a lower cost). "There’s a risk factor involved," says McLaughlin, "but I don’t think it’s as risky as many lawyers think it is."
Larry Hurd puts it this way: "I would rather sit at my desk and read a good book and go bankrupt in style, than to do work for clients and not get paid what I feel it’s worth." That said, he’s as busy as he wants to be.
Raising fees may be tough in an atmosphere of growing criticism that lawyers are pricing themselves out of the market. This perception is leading more and more litigants to represent themselves in legal matters, and the courts are accommodating this trend. As a result, says Lonny Balbi, lawyers in the United States, and now increasingly in Canada, are trying a new concept called ‘value billing’ in which they set a generous flat rate – but only collect if they win the case. In other words, if you lose you collect nothing.
"Clients are very happy, and lawyers can actually make a lot more money doing it that way," says Balbi. "You might take a risk and lose, but overall, the ones that you win, you win big."
Amy Jo Ehman is a freelance writer in Saskatoon.
Neither the author nor the CBA should be construed as endorsing any product or website listed in this article. The views expressed in this article are those of the author and do not necessarily reflect the views of the CBA.|
In this document, any reference to "jurist" or "lawyer" includes, where appropriate, "Québec notary".