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Despite the fact that most lawyers bill by the hour, we don’t really sell time; we sell a service at a fixed fee. Our goal should be providing value, defined as advice that gives solutions to our clients. In the end, the client’s perception of value really determines whether the price we charge is reasonable for the service provided. Price is the marketplace’s barometer for telling you how it values your service.
“Good service,” “value” and “solutions” shouldn’t be vague buzzwords. All lawyers, solo practitioners and members of megafirms alike, can structure what they do to consistently encourage a high client perception of value. To accomplish, lawyers must:
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Establish a return phone call policy. Return or have an assistant return clients’ phone calls within two to four hours.
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Know your clients’ concerns and understand their business.
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Create a client-friendly office environment. Have informative literature in the waiting room, and make sure it's available in languages that reflect your clients’ primary languages.
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Prepare your clients for interactive events such as negotiation sessions, depositions, and testimony so they know what to expect and are prepared for what might happen. Incorporate a wide range of possibilities so that clients are not shocked if the outcome, over which you have no control, is different from what they had hoped.
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Never make promises you can’t keep. Particularly with a new initiative, consider limiting yourself to consistent, well-planned effort on one project only, at least until expectations of value and service are defined by both parties.
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Regularly ask clients for feedback about whether they are pleased with your services. This feedback should be focused on their satisfaction with the service provided, not on the results achieved.
Such value-added elements are easy for clients to understand and, when related to the time it took the lawyer to realize that value, make billing statements more meaningful. Of course, all of us know that price pressures can lead clients, particularly corporate ones, to ask for lower billing rates.
The advantage of charging for value is that, rather than lowering our price, we are in a position to take value/services off the table in order to deliver a lower price to the client. If returned phone calls within 2 hours are part of your regular hourly rate, take that response time off the table if you lower your hourly rate in response to your client's request. Tell the client that your response time will be 24, or even 48, hours. The point will be clear: you’re not lowering your price, you’re changing the value composition of what the client is buying.
The positive side of the pricing equation is that demonstrating your value enables you to make a convincing case about raising your fees. This is always a tricky thing to do, and the general ability to do it hinges on two factors, one qualitative and one quantitative:
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Qualitative considerations for a fee increase generally involve ethical questions of professional conduct. Is the amount of the fee reasonable and in proportion to the value of the services performed? Does the lawyer have the skill and experience to justify the fee? Does the client understand the amount and nature of the fee and consent to it? Answering no to any of these questions means a fee increase is not warranted.
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Quantitative factors typically come down to marketing considerations. Your new fee must be competitive with others in your geographic and practice areas. You must know the current market conditions and the competitive pressures on legal fees. Each local market has its own characteristics. National trends are interesting, but they do not control your situation.
Assuming you pass these two tests, the question becomes how best to make the case for raising your fees. The lawyer who thinks in terms of value can make these tangible arguments:
1. You add value. In other words, do more things that cost less than the increase. If you handle estate planning, for example, you could add financial planning as a service, either as part of the fee package or for a designated added fee.
Sometimes, showing that you provide better-than-excellent service is all you need to justify a fee increase. For example, consider packaging final documents in an attractive folder and hand delivering them to the client. This improved presentation adds only pennies to your costs, but it will be perceived as an example of your caring for and nurturing the client. Faster turnaround from engagement to completion is another way of adding value and exceeding expectations.
2.You achieve results. If you raise fees going forward after you’ve won a motion for the client or negotiated a favorable deal – even if somewhat before or beyond your normal billing date – they’re more likely to be accepted. It places the client on the peak of the "satisfaction curve," the time of least resistance for accepting an increase. Do it later and the client will invariably forget how important you were in achieving the result and may resist.
3.You are reasonable. All other things being equal, the smaller the fee increase, the easier it is for clients to accept it. Adding three to five per cent to an hourly fee won’t turn off many clients.
Remember, for the average client, there is little price sensitivity in choosing a lawyer. More than 60 percent of lawyer-client relationships result from referrals from trusted friends, or from other factors such as the perception of legal ability. In these instances, clients are generally willing to understand and accept modest fee increases.
4. You handle a big-ticket or break-the-company case. In these instances, price doesn’t seem to matter. The client’s options are limited and the perception of need, and therefore value, is high. When matters are serious and precedent setting, clients want whomever they perceive to be the best, and price typically is not a factor.
5.You are cutting edge. Effective implementation of Knowledge Management is a good example of this. Clients no longer want their lawyer to reinvent the wheel. Once you’ve done the research, or created the template, electronic Knowledge Management through a shared database makes the information available faster and more completely to clients and others in the firm. The result is greater efficiency, better communication and faster turnaround. That kind of value performance can justify a higher effective hourly rate, especially with corporate clients who reward continuous improvement.
There is no perfect time to raise fees. Those clients who do not want to pay the higher fee will seek other counsel. Those who believe your service to be of value will accept the higher fees and remain with you. It’s a simple equation – provided that value is on your side.
Edward Poll (edpoll@lawbiz.com) is a certified management consultant and coach in Los Angeles who coaches attorneys and law firms on how to deliver their services more profitably. He is the author of Attorney and Law Firm Guide to the Business of Law: Planning and Operating for Survival and Growth, 2nd ed. (ABA, 2002), Collecting Your Fee: Getting Paid from Intake to Invoice (ABA, 2003) and, most recently, Selling Your Law Practice: The Profitable Exit Strategy (LawBiz, 2005).