Law Firm Necessities – Setting Your Rates
When you are starting your own law firm, you are obviously going to have to devote some time to deciding your hourly rates and flat fees. This can be a difficult and complicated process, and there is a lot riding on it.
You don’t want to end up spending an excessive amount of hours trying to pay the bills, and yet you need to ensure that you have clients giving you business.
How will you go about doing this?
How do you make sure you are not underselling your services but are remaining competitive with the market at the same time?
What is to be considered reasonable?
In today’s article I’m going to answer these questions for you and provide you some food for thought and potential strategies to help you set your rates.
Where To Begin
If only it was as easy as ringing up the other lawyers in your area and asking them what they charge. Law firms rarely, if ever, publicize their rates, and it is highly unlikely that any will divulge this information if asked directly.
A different approach to this question is to ask what they would advise a new layer like yourself who is just starting out. Ask what they think would be fair and reasonable for someone with your experience and level of education.
You could also try asking what they wished they had first charged when they first opened their firm.
You may not get a clear answer every time, but this would be a good place to start and get some benchmarks.
Another resource to consider is your state bar association. Some compile data on billing rates and provide it freely. The State Bar of Arizona puts out a report every three years. You can view this here
Decide What You Want To Be Paid
It’s a very good idea to have a handle on what other lawyers in your service area and geographic region or charging, but you may not want to make this the only factor in your decision.
What if they are all basing their rates on each other, and you know your services and skills are worth more?
It really can be as simple as choosing what you want to be paid per hour and going with that, but you must do your homework and crunch your numbers.
In order to make sure you are going to be able to stay in business, you need to factor in all the appropriate variables.
You have your overhead expenses and compensation to consider, as well as wages and benefits if you have staff, your marketing budget, and write offs to name a few possible expenditures.
Take the time to accurately gauge what your expenses are to ensure that your compensation is going to keep you fed and allow you to meet your financial goals.
If you are a brave and enterprising sort, you could try what Alex Bajwa did, and let your clients decide what to pay you. He did this for a month and found it both illuminating and rewarding. Check out his very interesting experiment and the positive results he gained from engaging in it.
Not only was his faith in his clients to pay fairly validated, but he gained insightful knowledge as to the perceptions his clients had of his services and of the law industry in general.
He asked his clients to consider three things when setting their rates:
- The value of the services
- The client’s satisfaction with the level of service and representation of the firm
- What the client could afford to pay
It should be noted that his experiment also dovetailed nicely into a marketing strategy as it gave his firm more exposure.
Not to be overlooked.
Survey The Field
Knowing what your clients are thinking and perceiving is invaluable information for determining your rates and gauging the market. If you aren’t as risky as Alex but see the value in the kind of information he gained, you could create a customized survey and send it to clients and prospective clients, as well as other lawyers in your area.
Describe your services and ask what they think is a fair and reasonable price. You may find that some people are simply not aware as to what is involved in providing the services that you are offering, thus giving you a chance to tailor your marketing strategies to educate on the issue.
So, you see there is no cut and dry answer to setting the rates for your law firm, but the more information and data you have, the better position you will be able to place yourself in.
It’s a tricky business, so take the time and do your research!
Until next time!