How Much Do You Deserve to Be Paid?
Note: there is more similar information in the article “Here’s What to Do When Clients Want Legal Fee Estimates in Unpredictable Cases” and the article “Art of Getting Paid”.
By Frederick Hertz. He is an attorney and mediator based in Oakland, has managed his solo practice for more than 25 years.
Setting your billing rate is not a simple task, as there are several dimensions to the analysis. The simplest approach is to see what your competitors are charging, and match those rates. But even this is not so simple. It’s not always obvious who are your competitors, or what aspects of your work should push you higher or lower than what they are charging. Are you looking to bring in new clients quickly, or can you afford to have folks walk down the street because they think your rates are too high? Are you expanding into new areas, such that your performance may be less-than-stellar at first, and thus your fees should be reduced accordingly? Or, are there particular reasons for you to adjust your fees? As I often tell my clients, I charge 20 percent less than my competition because I rarely have unpaid fees, compared to those who overcharge paying clients to cover the deficit of those who don’t pay in full.
Another approach is to start with what you believe is a reasonable annual income, given your skill level and area of practice, and estimate your costs and workload to set the hourly rate accordingly. If you expect to net $150,000 after expenses (but before taxes) and your office expenses are $75,000, you’ll need to bring in $225,000. If you figure you can reasonably bill 20 hours per week for 50 weeks per year, $225 per hour will meet your goal. If you are hoping to clear closer to $250,000 per year, you’ll need to either up your billable hours per week or increase the hourly rate—or both.
The third angle focuses on the benefit to the client. This is a rather amorphous concept: What’s a will worth given that most folks will outlive the relevance of the will you initially draft? Clients inevitably have wills revised. Effectively counseling a client through a nasty divorce clearly will be financially beneficial to you, but you wouldn’t expect to be paid a percentage of the community property estate! The value of your legal work is greatly affected by the wealth of the client. My high-asset clients are quite comfortable paying $5,000 for an enforceable premarital agreement, but those facing mounting credit card debt are going to worry about every 15 minutes of a billable hour.
I’ve never signed on to the notion that charging more sends a message of higher quality to clients. Rather, I worry about the resentment they often feel, sensing that you are unfairly profiting off their travails. I’ve probably collected somewhere north of $5 million in fees during my 27 years of private practice, and my total unpaid fees is well below $50,000, total. My hunch is that charging a fair hourly rate—even perhaps slightly below “market”—is part of the reason my rate of unpaid bills is below 1 percent. Clients know I’m not taking advantage of their situation, and they appreciate that.
I also am very slow to raise rates on existing clients—usually extending the prior rate for a year or so. It’s a simple act of courtesy, and again, they appreciate it. I let them know that I’ve raised rates for new clients, and if the matter isn’t resolved after some length of time I will raise their rates, but most matters are wrapped up within the year. Talk with your colleagues about how they handle these topics. Each sub-field has its own culture and standards of practice, and you’ll want to align your billing practices with others working on similar matters. For example, simple wills or premarital agreements often are done on a flat fee basis, unlike divorce proceedings.
You’ll also need to decide how much to charge for paralegal services, and which items are simply included in the hourly rate. It always seemed unwise for lawyers to charge for copying costs when they are billing out at $500 per hour—isn’t that sufficiently high to include a few dollars in copying costs? And, especially if you are a solo, you will also have to decide when your time itself should not be billable. I never charge for any time spent discussing fee issues with clients, and I usually don’t charge for my calls to colleagues asking for background information on a topic I’m not quite up to speed on.
Walking the Talk: Being Honest About Money
I often dwell in the land of financial obfuscation—otherwise known as premarital agreement planning and divorce mediation. Almost every day I meet with clients who are reluctant to speak the truth about their own financial situation, or face their deepest fears and concerns about their partner’s needs and wishes. Whether they are wrestling with questions as to who should pay for the house or deal with the accumulated credit card debt, or arguing after the fact as to who should absorb the loss of the ill-conceived house renovation project, resentments and anxieties about money often cloud the conversation.
One of the tasks I’m hired to perform—and it’s something lawyers do nearly every day—is to help my clients straighten out these messy entanglements. It only seems appropriate, therefore, for me to make it a priority to hold my own business conversations to the same standard I bring to their financial concerns. If you expect your clients to honor their agreements with their business partners and spouses, shouldn’t you strive to honor your own business agreements?
It starts with being honest about the nature and scope of your anticipated work. Most clients don’t really know what lawyers do on their behalf, and it’s important, especially for new clients, that you explain your tasks in simple-to-understand terms. You also want to be sure to explain how the time flows in your particular legal arena. I spend much of my time negotiating with other lawyers, either by phone or email, and it can be hard to explain to clients why this can take so long. The additional hours I devote to educating my clients and coaching them about their goals and our strategies also can seem mysterious to clients. If I’m not able to demonstrate to them why these tasks take as long as they do and why they are so important, there’s a risk that I may have problems collecting my fees when they receive my invoices.
Honesty sometimes requires some painful disclosures, and even some monetary concessions. If you happened to choose a strategy that didn’t pan out well, you may need to discount your fees a bit as part of an acknowledgment of the wasted time. On the other hand, if your client pushed you to make arguments that you thought were lacking in merit—and you told them so—then it’s only fair that they bear the entire burden of the squandered hours. I always try to quantify the likely fees involved in any particular strategy, so my client will understand why choosing that path resulted in the fees that were incurred.
It’s a two-way street. If you send the message that open discussion of financial issues is welcomed, you will also be signaling to your clients that they need to be honest with you, both about their legal goals and their financial limitations. I recently had a discussion with a client about the prospects of his buying out his spouse’s share of their home, but once he fully disclosed his constrained circumstances, I was able to tell him that this wouldn’t be a fruitful strategy to pursue, thus saving him a lot of money on a negotiation that would have gone nowhere. Similarly, pursuing endless pre-trial motions on small battles without knowing the limits of your client’s litigation budget is foolhardy—and likely to lead to a large unpaid bill.
See the article: Here’s What to Do When Clients Want Legal Fee Estimates in Unpredictable Cases