I can’t tell you how often I am asked, ‘How do I set my fees?’
Setting fees for your legal services is a two-fold proposition. It isn’t just learning what the going rate for legal services is and positioning yourself within a reasonable range based upon your experience. It isn’t just about pricing based upon the value to your client. 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, the practice area, the value to your client and the value to you. (It’s ironic, too, that Seth Godin’s little jewel of a post just came out!) And your fees are basically pre-determined by what the market/clientele can comfortably sustain within a small range.
If you ask a twenty-year family law veteran the going rate in New York City and she replies “$550 per hour against a $20,000 retainer,” will that fly for a two-year attorney in Narrowsburg? Probably not.
The most efficient way to learn what the market can sustain is to talk to other attorneys 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. Alienating local 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 favor but in the long run you are doing more harm than good all around by diminishing the value of your services unless you have introduced a totally new business model and have actually educated your client as to why this new business model is a game-changer in the profession.
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.
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. If they aren’t in the beginning, you best believe the internet will help them out as well as review sites and forums.
Realistically, how many people have you met who are shocked a personal injury lawyer generally takes a contingency fee of one third on a case? Not many. Most people know average hourly rates are in the $200 – $300 ballpark. So, if you present a fee of $100 per hour, chances are the client will be suspicious. If you present an hourly fee of $300 and the client tries to negotiate your fee downward and you say, “OK,” 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 bag of Doritos. The price rings up at $1.69. The customer knows the price is $1.69 because it is marked on the package. He asks you if you will sell it at $1.29. You would easily say, “the price is $1.69.” He says, “but I only have $1.29.” You would have no problem saying, “I’m sorry. But that is the price. The package is clearly marked $1.69.” The customer says, “but I can buy these Doritos for $1.29 at the convenience store down the street.” Would you then lower the price of the Doritos in order to keep his business with the future hope he will come back to buy more Doritos and refer his friends to buy Doritos from you even though you will take a $.40 loss each time?” I think you would tell him very nicely to go buy his Doritos down the street and feel no loss for not having sold the Doritos 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 who have been practicing for years) most can’t seem to recognize that even though the price is not stamped on our foreheads our services still have a relatively fixed value and we must convey that with the same confidence to our clients. The reality is if the convenience store owner sold the Doritos for $1.29 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 $1.29 for Doritos at that convenience store. (I assure you if the store owner now tried to charge $1.69 customers would say, “but you only charged so and so $1.29.”) 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.
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.