Most lawyers earn a living by setting their hourly rate and then charging for the number of hours (or fractions thereof) that they work. The biggest challenge for lawyers, particularly solo practitioners, is how to leverage their time. No matter how much a lawyer increases his or her hourly rate, the lawyer can never earn more than the amount of time he or she puts in. For example, if a solo practitioner doesn’t show up for work tomorrow, that lawyer won’t make any money. And even if the lawyer does show up for work tomorrow, he or she will only earn the amount of money based on multiplying the number of hours worked by their fixed billing rate.
So, how can lawyers leverage their time?
Not by increasing their hourly rate. Even if you charge $1000 per hour, you can only get paid for the number of hours that you work. And if the competition in your geographical area is only charging $200 per hour, raising your rate will only earn you more free time, not more money. So what opportunities does a lawyer have to leverage their time and make more money without having to work harder? I would suggest that there are four things lawyers can leverage: (1) other people’s time, (2) knowledge (information), (3) technology, and (4) packaged services.
In building the law firm of the future, I have started thinking about how to leverage these four things. I will describe my thoughts in more detail later. In what ways do you leverage your time? Care to share any examples?
Showing posts with label billing. Show all posts
Showing posts with label billing. Show all posts
Wednesday, October 31, 2007
Monday, February 19, 2007
How should lawyers charge for services?
There are three ways to charge for legal services: hourly, fixed fee or contingency. I typically charge for work on an hourly basis. Even when I offer clients a "fixed fee", I have to estimate the amount of time it would take and base the estimate on some equivalent amount of time. Other lawyers charge on a contingency, but that is not generally appropriate unless the matter has a significant payout and easily definable objectives.
So how should lawyers charge for their time? Lawyers are are split as to whether to charge for a fixed fee vs. hourly.
Tom Kane, a marketing consultant and former practicing attorney, suggests that small firms can gain an advantage over large firms by "looking seriously at alternatives to billing by the hour".
Chris Marston, founder of Exemplar Law Partners, LLC, a firm that claims to be the "first corporate law firm in the nation to exclusively adopt a fixed price model", believes that fixed pricing must be based on "value to the client".
Jeffrey Lalloway, a divorce lawyer in California, advises "not to hire a lawyer that is not willing to work on a fixed fee basis."
Joseph Grasmik, a business immigration lawyer in New York, publishes "typical fees" on his website with detailed FAQs, but then invites potential clients to request an estimate for a specific matter. Mr. Gasmik also publishes a "do-it-yourself" engagement letter that clients are supposed to fill out and sign based on quoted fees.
My approach is not to be strictly limited to either fixed fee or hourly rates. For some matters, like incorporation, a fixed fee is appropriate because the nature of the work is known and can be estimated based on prior experience. For other matters, the time or work is not known and may be disproportionate to what the matter is worth objectively (because the client wants to pursue it for non-monetary reasons). What is important is to set expectations reasonably and to put the client in control of deciding what services they wish to buy.
In yesterday's blog, I wrote that Knowledge Management will drive law firms of the future. If law firms develop high quality knowledge systems, how will that affect pricing? Will that make fixed fee billing more likely to be offered?
How do you think lawyers should charge for services?
So how should lawyers charge for their time? Lawyers are are split as to whether to charge for a fixed fee vs. hourly.
Tom Kane, a marketing consultant and former practicing attorney, suggests that small firms can gain an advantage over large firms by "looking seriously at alternatives to billing by the hour".
Chris Marston, founder of Exemplar Law Partners, LLC, a firm that claims to be the "first corporate law firm in the nation to exclusively adopt a fixed price model", believes that fixed pricing must be based on "value to the client".
Jeffrey Lalloway, a divorce lawyer in California, advises "not to hire a lawyer that is not willing to work on a fixed fee basis."
Joseph Grasmik, a business immigration lawyer in New York, publishes "typical fees" on his website with detailed FAQs, but then invites potential clients to request an estimate for a specific matter. Mr. Gasmik also publishes a "do-it-yourself" engagement letter that clients are supposed to fill out and sign based on quoted fees.
My approach is not to be strictly limited to either fixed fee or hourly rates. For some matters, like incorporation, a fixed fee is appropriate because the nature of the work is known and can be estimated based on prior experience. For other matters, the time or work is not known and may be disproportionate to what the matter is worth objectively (because the client wants to pursue it for non-monetary reasons). What is important is to set expectations reasonably and to put the client in control of deciding what services they wish to buy.
In yesterday's blog, I wrote that Knowledge Management will drive law firms of the future. If law firms develop high quality knowledge systems, how will that affect pricing? Will that make fixed fee billing more likely to be offered?
How do you think lawyers should charge for services?
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