How to Establish Your Rates in Legal Practice Management

 How to Establish Your Rates in Legal Practice Management

Most attorneys find that determining fees is a challenging task when planning the marketing strategy for their law firms. Sometimes lawyers charge too little for their services. When developing strategies to promote their law firms, far too many lawyers are hesitant to charge what is considered a fair price for their services. On top of that, they frequently make pricing decisions without any kind of data or theoretical basis. Also, they don't bother to figure out how to justify charging top dollar for their services; instead, they charge a fee that is so low that it turns off potential customers who are afraid the service will be lacking in quality due to its low price. Also, a lot of lawyers fail to understand that the vast majority of buyers out there are "value purchasers" who aren't seeking "cheap."

You should familiarize yourself with the common pricing distinctions used in marketing strategies for law firms before you sit down to devise a pricing strategy for your practice. Next, incorporate your pricing strategy into the marketing plans for your legal firm. If you want to make a decent living, not just a decent profit, you need to charge enough for everything. If your marketing strategy for your law firm focuses solely on attracting clients willing to pay the lowest possible price, you will be missing out on potential revenue. Those customers aren't loyal. Your marketing and practice management efforts should instead center on bringing in clients who can contribute to the success of your legal business in the long run. I can assure you that low-priced clients will not help you build a loyal customer base.

There are essentially four approaches to establishing a fair price for your services. Now, let's dive headfirst into those.

Pricing for Legal Practice Management Through the Market Approach

This is a solid method for setting prices. Collaborate with your assistant on this law practice management task and take the time to research the community's pricing range. Ask her to play the role of a "mystery shopper" and call around pretending to be a customer in order to get the lowdown on pricing from your competitors. Calling from her home phone might be her only option for avoiding caller ID. You could also ask them to contact other paralegals or assistants at competing firms and propose a fee swap, or you could approach other attorneys in your area directly. For those who are serious about gathering as much data as possible, one strategy is to contact a few dozen competitors in your market and pretend to be conducting a fee survey. In exchange for their fee list, you will compile a composite list that masks responders' identities and share the results with them. Include a list of the most common services offered in your practice area in a stamped, self-addressed envelope to make things easy for them. Find out now how much others are charging for services like yours. It is expected that you can generate a range of prices. Price your own services within this range. When strategizing marketing for a legal firm, I suggest setting prices at the 75% markup. Thus, you ought to fall somewhere around the 25% mark for the fees.

As a general rule, competing on price is not a smart way to manage a law practice. If the price is too low, most customers will assume that the service, provider, or company is lacking in some way. Furthermore, bargain hunters will not become loyal customers but will instead seek out the lowest price they can find. You should charge enough to cover your expenses plus a fair profit.

Pricing for Legal Practice Management Based on the Cost Approach

There isn't much complexity to this pricing strategy for legal practice management. Finding the delivery costs of goods or services and adding a reasonable profit—anywhere from fifteen percent to thirty-three percent—is all that is required. Leaving out some type of expense is the most typical blunder when using this method for managing a law practice. Attorneys who work alone or for small firms often do not factor in their own salary.

Alright, I'll repeat it. You should include yourself in the expenses when managing your law practice, but you often do not. Why? Performing part of the technical tasks is common. Is that so? In many cases, you will be responsible for managing at least part of the team. Is that so? You have a right to a fair profit as the business owner. Is that so? If you're a technician, manager, and owner all rolled into one, you should expect to earn a salary commensurate with your time and expertise, plus a profit margin of fifteen to thirty percent. Be careful to factor in a fair amount for your managerial and technical work in the expenses section of this formula.

Pricing for Legal Practice Management Using a Fixed Rate Approach

Many service providers, including mechanics (who use what is known as "the flat rate book"), use this approach. In this approach, you set a flat rate for all of your services and never change it. The mechanic makes more money if he completes the job in less time than originally estimated. He will earn less if he goes over his allotted time. But eventually, everything balances out (or, more accurately, usually works out for the mechanics). The way managed health care has implemented this system with medical facilities and practitioners is another illustration of its use. This system is available to attorneys if they so want.

Pricing according to the "Rule of Three" for Legal Practice Management

This "rule of thumb" known as the "rule of three" that is utilized in the management of law practices differs from what your certified public accountant may advise you, but it also does not let you down. Get the opinion of your certified public accountant; they'll probably approve. Our first step will be to use the "thirds" mental model. The total compensation for those who create revenue and those who keep track of time (including you if you are generating revenue) will constitute the first third of this total. This does not include benefits, which are considered a separate category. For simplicity's sake, let's assume that the first third of the total compensation is $100,000. This includes the income-generating attorneys, paralegals, and legal secretaries as well as their timekeepers. Whatever that figure is, double it; it will constitute the second third of your budget, which we will refer to as "overhead" (so, $100,000; and remember to include the time spent on managing partner-type tasks in this budget as well). After that, add $100,000 to that figure; this is your last third, which we'll refer to as gross profits. The first step is to multiply the total amount by three. In this case, it's $300,000. Then, determine the amount you need to charge per billable hour, per fixed rate, or by the number of contingency fee cases won in order to meet the target.

You can find out the necessary rate per hour using this method. So, you know how many billable hours each revenue generator can do per month. To find out what you need to charge per billable hour, divide that number by your total of all thirds ($300,000). If everything goes according to plan, your business should bring in between fifteen and thirty percent of its revenue. Ultimately, as the practice's owner, you should also be entitled to a reasonable profit, right? You may hear this strategy called the Rule of Three. Do not hesitate to get in touch with me if you find this approach to be somewhat perplexing; I will gladly spend a few minutes with you over the phone to clarify everything.

Prior to settling on a price and launching a marketing campaign for your law firm, it is wise to consider all of these pricing strategies as you formulate your strategy for managing your practice's finances. Always keep in mind that the majority of lawyers have a tendency to undercharge. Oh, please don't! You will never again have to worry about not getting the fee you deserve because I will tell you in another article how to speak to potential clients.

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