For law firms of all sizes, figuring out how to price their services is vital to striking a balance between ensuring client satisfaction and turning a sustainable profit. Doing so will provide law firms with a chance to thrive in the ever-competitive legal services industry. However, the right balance between these two factors differs for each law firm. It's therefore up to each law firm to determine what degree of balance is best for them, and how to best achieve it. That being said, there are some guidelines that can be useful for any law firm, regardless of size, age, or field. These questions serve as a compass to keep law firms on the right path, ensuring they maximize their profitability in a way that still creates a stellar reputation for client service and satisfaction.
The first question any law firm needs to ask when determining the right prices for legal services is 'how does this compare to the rates of other firms'? An important thing to keep in mind is this is more of a data point rather than a concrete guide to establishing reasonable pricing. Look at similar law firms with similar areas of practice, and determine what the 'going rate' is. Be sure to compare like matters to like matters - simple will creation versus a complex will, etc. Getting this data is not based on any individual law firm. Reach out to your local Bar Association or the state Bar Association. Some attorney associations may complete surveys and provide the range of information. The U.S. Bureau of Labor Statistics provides information at a high level and at a state level.
By comparing the rates of similar firms in similar practice areas, law firms can get a better idea of what a reasonable going rate for legal services may be. That way, firms can offer rates that allow them to compete with other firms in the same practice areas while not driving away clients with going rates seen as unreasonable when compared to other firms.
Consider the 'going rate' against your costs. Ensure you have a thorough understanding of the cost of running your firm. Below is a list of typical expenses, covered previously, that are likely for your firm:
If using a flat fee approach when determining the right rate for a matter, consider the time and effort it takes for the firm and its' employees to complete a 'typical' case. This can be an estimated average or an actual data point. Another thing to consider is how complex the 'typical' case tends to be. When establishing pricing rates, it's important for law firms to ensure that they're properly compensated for their labor. In essence, law firms need to ensure that their pricing matches the effort and attention put into providing their services. If billing hourly, the rate charged generally matches the attorneys experience, expertise, and practice area for the local area.
If it isn't possible to achieve a good balance between profit and client satisfaction, it may be a good idea to consider alternative ways of providing legal services for clients. Consider the geographic and professional limitations of the law firm and whether expansion to either another practice area of geographic area is a possibility. If there is a silver lining to the pandemic, doing business remotely and online is far more normalized. Many people are now more willing to meet online. Making the switch to remote meetings could help law balance out the difference between costs incurred and services provided.
Another important question to ask when pricing legal services is whether the firm makes things simple and streamlined? Using client management software programs like SimpleLaw allows firms to utilize a client portal that gives them the ability to be a proactive member in the management and resolution of their case. It's important that when choosing a client management software law firms figure out how much each program allows clients to do. Does it allow them to add documents? Notes? Does it provide ways for professionals and clients to connect and communicate, securely? Utilizing client management programs can be a great opportunity to maximize output and profit in a way that doesn't require an increase in rates; therefore allowing law firms to be more flexible in pricing their services. Something clients will almost certainly appreciate.
It's also important to consider how clients will pay for their legal services. Figure out what kind of billing structure is best for the firm. Is it an hourly fee rate or a flat fee rate? Regardless of the rate, it's important to ensure the consistent application of it across all aspects of the firm. This will save time, money, and effort. Some client management software programs allow for a singular, streamlined apparatus for billing clients and for clients in turn to pay. Not only will this save time, but this will help ensure fees are collected and cataloged properly. This helps firms keep track of their earnings and more accurately gauge the necessary amount to price their legal services.
Upon collecting each of these data points, take all of this into consideration when determining whether an hourly or flat rate is best for the firm. Afterwards, figure out what the rate should be to attract and retain clients. Remember, however, that cost is not the top issue - clients want to work with law firms they trust, that they believe have their best interest in mind, and are good communicators, among other items. The key is to find a balance between these client satisfaction and rate factors that is best for the firm and their clients.
Finally, always remember that this isn't a set it and forget it situation. There are always improvements and additions that can be made to ensure the firm is maintaining that balance. Continuous innovation and improvement will, above all else, convey a devotion to a firm's work and to its clients. For smaller and newer firms that need any advantage to compete in the legal services market, striking the best possible balance between productivity and reputation among clients can provide them with the advantage they need to compete with other firms.