Applied Economics: Business, Personal and Complex Litigation: When Steven Sanchez was a senior at Stanford University he had two forward paths from... How to Protect Your Private Practice From a California Payroll Tax Audit: Did you know you can be held personally liable for payroll taxes if the California... Are You Suffering From Solo / Small Firm Imposter Syndrome?: Until recently, practicing law in the private realm pretty much came down to two... The Lateral Attorney Transition Two Tips To Make Your Next Hire a Good One: Anyone in the legal community knows that a popular method for growing business is to... 6 Reasons Why Content Is too Important for Lawyers to Write: Content is about the music, not the words. That’s why it is too important to be written... California Case Summaries ADR™ Organized Succinct Summaries of New California Civil Cases: CALIFORNIA COURTS OF APPEAL - Arbitration - Uber Technologies v. Google (2018) _... Amp up Your LinkedIn Profile With These 10 Tips for Lawyers: The new year is approaching fast and amidst the last-minute holiday shopping, you can be... Community News – December 2018: Vanst Law recently opened its virtual doors. At this modern law firm, all attorneys are... From Confusion to Clarity for Dentists and Physicians: San Diego’s Attorney for Dentists and Physicians Earns a Position on the Leading Edge... 5 Tips for Young Lawyers How to Find Your Way in a Crowded Arena: Young lawyers can face some uphill battles out of law school. The dream of defending the...
Executive Presentations-468x60-1

Don’t Lose Your Shirt When Raising Your Fees

As part of your law firm’s strategy, you want (ideally) to align your pricing methods, metrics and communications with your clients’ value proposition. That, of course, is easier said than done. Most firms struggle to achieve the delicate balance between the rates they need to charge and the rates clients are willing to pay. And all firms face the same fear: What if you miscalculate and lose your best clients?

Still, there comes a time when you have to increase your rates to stay profitable.

HOW TO RAISE FEES WITHOUT LOSING CLIENTS
So, how do you implement a rate increase without driving away the client? It comes down to communication, metrics, timing and value. Here are some thoughts on how to go about it.
1.
Get over the fear factor. Don’t let fear keep you from raising rates! Chances are, if you are making excuses to avoid a rate hike, those excuses are a cover for speculations based on fear.
2.
Communicate the “whys.” When your firm has specific reasons for raising rates, tell your clients. Perhaps you froze rates during the recession out of consideration for your clients’ financial situations, or to keep their business. Maybe you wrote off a considerable amount of time each month resulting in even lower effective rates. No matter how big or small, letting clients know about these financial courtesies builds goodwill—and it can be a great client development tool.
3.
Understand the metrics. Before deciding to increase your rates, know your firm’s economics. Do you know where your breakeven point is, profit-wise? How much it costs to produce a billable hour, or a brief? Or your costs by timekeeper? Understanding the economics makes it much easier to determine the increase. Keep in mind that smaller increases — 3 to 5 percent per year—are generally better, and are met with less resistance when they are implemented consistently (i.e., the same time each year). When setting rates, it’s not just about what the firm “needs” to charge to break even, but also about what the firm “wants” to generate in fees. Review your costs, calculate your breakeven point, and determine a suitable rate. You might also consider the 80/20 scenario: Identify the 20 percent of your clients who generate the least profit and either raise their rates or terminate them. If this sounds harsh, keep in mind that you are in business to generate profit—you cannot afford to carry unprofitable clients just because you like them.
4.
Timing is everything—no surprises! The worst thing you can do is fail to tell clients about your rate increase, instead letting them find out when they open their next invoice. Let your clients know in writing that you are increasing rates and provide sufficient notice, perhaps 60 days. Also, as a best practice, make sure your engagement letters include language indicating the firm will, upon notice, adjust rates periodically. This should alleviate some pushback. Some clients will resist and attempt to negotiate the proposed rate increases. That opens the door for discussions about the actual value of legal services provided … and brings us to No. 5.
5.
Talk about the value being delivered. Will you lose some clients who aren’t willing to pay a higher rate? Maybe. But if you do, your firm needs to ask an important question: Why doesn’t the client perceive the full value of the services provided? Get past the fear factor and help clients understand the value your firm delivers. At every chance, seize the opportunity to educate them! n

Digg This
Reddit This
Stumble Now!
Buzz This
Vote on DZone
Share on Facebook
Bookmark this on Delicious
Kick It on DotNetKicks.com
Shout it
Share on LinkedIn
Bookmark this on Technorati
Post on Twitter
Google Buzz (aka. Google Reader)
www.pdf24.org    Send article as PDF   

Filed Under: Featured StoriesPractice Management

About the Author:

RSSComments (0)

Trackback URL

Leave a Reply

  • Polls