How to Manage Your Law Practice – How to Determine Your Fees
When it comes to developing their law firm marketing strategies, most lawyers find determining fees to be a tough law office management challenge. When it comes to calculating costs for certain services, lawyers often charge less than what they should. When it comes to developing their law firm marketing strategies, far too many lawyers are scared of even charging a fair fee for their services. Furthermore, they often make price choices without having any evidence or a conceptual framework to guide them. Furthermore, rather than concentrating their efforts on how they can justify charging top dollar for what they provide, they charge a fee that is frequently far too low, which can actually scare away potential clients who believe there is something missing from a service that is perceived to be “cheap.” Furthermore, many lawyers are unaware that the vast majority of buyers in the marketplace are “value purchasers,” rather than those seeking “cheap” deals.
So, before you sit down and begin formulating a price strategy for your law practice management, it’s important to understand some of the pricing differences that are frequently utilized in law firm marketing planning. Your pricing approach should then be included in your law firm’s marketing strategies. You must ensure that you are charging a suitable charge for all of your services in order to ensure that you make a decent profit rather than simply a good living. Do keep in mind that a legal practice management law business marketing strategy will be ineffective if it is designed only to attract individuals who are looking to pay the lowest possible price for a service. These are not long-term customers. As a result, you should concentrate your law practice management and law firm marketing efforts on recruiting customers who will become long-term assets to the business. I can assure you that low-priced customers do not contribute to the growth of your clientele base over time.
Generally speaking, there are four approaches to deciding how much you should charge for your products or services. Let’s go right into them straight now.
In the field of law practice management pricing, the market method is used.
This is an effective method of calculating prices. Recruit the assistance of your legal assistant to help you with this law firm management job, and spend some time researching the price ranges available in the neighborhood. Have her do a “mystery shopper” study in which she calls around pretending to be a prospective customer to find out what your rivals say on the phone when she inquires about their price. It is possible that she will need to call from her home phone in order to evade caller ID. Alternatively, you might ask your assistant or paralegal to contact other assistants or paralegals at your rivals and offer to swap your fee for theirs; alternatively, you could do the same with other attorneys in your market. For those who are serious about getting into it and gathering as much information as possible, you can write to a few dozen competitors in your market and inform them that you are conducting a fee survey and that if they send you their fee list, you will create a composite list that would not identify those who responded and send them a copy of the results. To make things as easy as possible for them, send a stamped, self-addressed envelope along with a list of the most often requested services in your practice area. You will now be able to see what other individuals are charging for services that are comparable to those that you provide. Price ranges should be able to be generated by the author of this document. Prices for your own services may be established using this range. When it comes to law firm marketing strategy, I suggest charging at the 75 percent level of the list as a starting point. As a result, you should be in the top 25 percent of the fees charged.
It’s important to remember that, in general, competing on price is not a smart legal firm management approach. Pricing that is excessively cheap will be seen by the majority of prospective customers as a signal that something is lacking in the service, the supplier, or the business in question. In addition, individuals who are seeking a cheap price may seek that low price wherever it can be found rather than becoming long-term customers. As a result, be certain that your pricing includes both your expenses and a fair profit margin.
In the field of law practice management pricing, the cost method is used.
This technique of pricing for legal office management is really very simple to understand. In order to make a fair profit, one just calculates the cost of providing items or services and then adds an acceptable profit margin, which should be anywhere between fifteen percent to thirty-three percent at the very most. The most frequent error made in legal firm management when utilizing this approach is to forget to include some kind of cost in the budget. Attorneys who work for themselves or in small firms are less likely to disclose their own income.
Okay, let me repeat it again. In legal firm management, it is common practice to exclude oneself from costs, while in fact, you should include yourself in the expenses. Why? Frequently, you are responsible for at least part of the technical effort. Yes? Frequently, you are responsible for at least a portion of the managerial job. Yes? You are entitled to a fair profit as the proprietor of the company. Yes? If you are all three of these roles in one, you should consider one salary as compensation for your time and skills as the technician and manager, as well as a profit of fifteen to thirty percent as compensation for your time and expertise as the owner. Consequently, be sure to account for a fair cost for your technical and management labor in the expenditures section of this equation.
Pricing for Law Practice Management Using a Fixed Rate Method
Thousands of car mechanics (known as “the flat rate book”) and other service providers utilize this technique to calculate their fees. This technique entails determining a set fee for different tasks and charging that cost regardless of the circumstances. If the technician completes the work in less time than was allowed, he earns extra money. Spending more time than is allowed results in lower earnings. But, in the end, everything balances out (or, at the very least, in the mechanics’ favor, if you ask me). Another example of how this approach has been applied is in the context of managed health care, which has used this system for hospitals and physicians. If they so want, lawyers may take advantage of this mechanism.
Law Practice Management Pricing: The “Rule of Three” in the Industry
However, this “rule of thumb” known as the “three-point rule” in law firm management is not what your CPA may tell you, and it will not let you down either if followed correctly. Inquire with your CPA about their thoughts on it, and they will enjoy it. To begin, we’ll divide our thoughts into thirds and work our way down. We will use the total amount of salaries and bonuses (not benefits, just salaries – benefits will be included in the second third, which will be included after the first third) for the revenue generators and/or timekeepers (this includes you if you are generating revenue) to determine our first third of the total amount of salaries and bonuses. For the first third, put up the wages of the attorneys (and paralegals and legal secretaries) who produce income or serve as timekeepers and call it $100,000 (for the sake of simplicity, let’s simply assume that figure is $100,000). Whatever that number is, take that number again and divide it by three to get your second third, which we will refer to as your “overhead” (so your second third is $100,000, and don’t forget to include you if you are performing managing partner-type duties, because that portion of your time is included in overhead). Now take that same amount and divide it by three, which we will refer to as your last third, which we will refer to as gross earnings (another $100,000). Then, taking the total amount (in this case, $300,000), figure out how much you must charge per billable hour, how much you must charge per fixed rate, or how many contingency fee cases you must win in order to ensure that you meet the target we must meet given our first third number times three (in this case, $300,000).
This technique tells you how much you must charge each hour in order to be profitable. Considering that you already know how many billable hours each revenue generator can complete in a month, you can simply divide that figure by three ($300,000) to determine what you need to charge each revenue generator per billable hour in order to make your numbers add up properly. As long as you meet your objectives, you will be guaranteed a net profit of 15 percent to 30 percent of your activities. After all, since you are the practice’s owner, don’t you think you should be able to make a reasonable profit as well? The Rule of Three is the name given to this technique. If you find this technique to be a little complicated, please do not hesitate to call me and I will assist you in figuring it out over the phone in a few minutes.
You should consider all of these pricing methods when developing your law practice management pricing strategy. This will ensure that you are thoroughly exploring all of your options before deciding on a price and moving forward with a law firm marketing plan, which will help to ensure that you are thoroughly exploring all of your options. Keep in mind that most attorneys have a propensity to charge too little for their services. Please don’t do that! In another post, I’ll explain how to communicate effectively with prospective clients so that you never have a problem getting paid what you’re worth.