Name your price: how to set and discuss fees in a solo or small-firm practice

  • April 12, 2008
  • Susan Cartier Liebel

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 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

  1. Find out the going rate for legal services in your practice areas.
  2. When speaking with those lawyers, factor in years of experience, location, reputation and your gut instincts to ballpark where you should start your pricing.
  3. 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.)
  4. 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.
  5. 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).