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Pricing legal services is a complex matter. If you own or operate a law firm, you need to put significant thought into billing, as it impacts how potential clients see the value of your services and whether they choose to pursue representation. While many law firms still use the traditional billable hour, alternative law firm pricing is becoming more popular. If you are considering revamping your firm’s pricing strategy, it is essential to know about your options so you can ask yourself the right questions. How much should you charge? Are your prices too high or low? What are your competitors charging? With answers to those questions and a comprehensive understanding of alternative pricing models, you can determine which legal pricing strategy is best for you and how you can increase your caseload.
The Traditional Billable Hour
The billable hour has been the most common law firm pricing model since the 1960s. Lawyers would keep track of the hours spent on individual clients’ folders. Proponents of the billable model saw it as a way to increase profits, as it is easy to use and resulting pay is simple to predict.
As with any pricing strategy, the billable hour also has its disadvantages. The most notable is the ability for unethical attorneys to charge clients for tasks not directly related to their case. It can also be difficult for clients to budget for hourly rates if they do not know how many hours their attorney will need to dedicate to their case.
In an effort to better meet client needs, many law firms are considering alternative fee arrangements. This can benefit both clients and attorneys. Let us take a look at the most common alternative pricing models.
Alternative Pricing Models
There are three legal pricing strategies attorneys use–with multiple pricing models falling into each category. The broad-based strategies include:
- Value-first – Legal services are priced based on the value provided to the client.
- Cost-first – Legal services are based on attorney costs to ensure a margin of profitability.
- Competition first – Legal services are based on competition prices to provide better value for the price.
The traditional billable hour is a model that falls under the value-first strategy. As hourly pricing continues to lose its appeal, there are a number of alternative pricing models lawyers can consider. The most popular include the following:
Flat Fees
If you offer a number of similar legal services that encounter slight variation, establishing a flat rate may be for you. Think of flat-fee pricing like a restaurant menu–your clients choose what they want and pay the listed fee. Flat rate pricing works best for services like estate planning and immigration applications. Not only will your clients know what to expect in terms of billing, but you can generate a more accurate profit prediction based on the number and types of cases you accept.
Contingency Fees
Contingency fee pricing is popular among personal injury attorneys. Lawyers charge a percentage of their client’s award so long as they obtain a positive outcome. However, if the attorney loses the case, the client does not pay anything. Contingency fees make sense in areas of law where clients may not be able to afford legal assistance or where predictable billing benefits the attorney and client.
Evergreen Retainer
An evergreen retainer is when a client pays a specified amount up-front. The money is placed into a trust account. As the case progresses, the lawyer sends invoices and pays themselves from the trust. Attorneys working with commercial clients often opt for this billing model. Retainer fees range from thousands to hundreds of thousands of dollars. The amount is typically based on the services offered and the size of the firm.
Sliding Scale
Sliding scale pricing is a modification to hourly rates and flat fees. Instead of a standard rate, clients pay for legal services based on their income. Attorneys in low-income areas may adopt this model to make their services more affordable and accessible to the local population.
Subscription Pricing
If you have repeat clients that seek the same legal services on a scheduled or as-needed basis, subscription pricing is an option. Useful for law firms that manage legal affairs for businesses, subscription pricing offers clients services for a set monthly subscription fee. Law firms operating under this model may have better control over their finances, and clients know what to expect in terms of billing.
How Alternative Law Firm Pricing Attracts Clients
The attorney/client relationship has altered in the recent past, and clients, unfortunately, are less confident in their attorneys. You need to deliver compelling value at a fair price to keep up. However, the price is not enough to retain new or repeat clients. Instead, you should consider rethinking your pricing structure.
Alternate fee arrangements can set your firm apart from the rest by offering client-centric payment options. Research suggests that today’s legal clients like to be in control and are willing to take proactive steps to get the legal help they need. You can encourage control and help with proactivity with the right pricing strategy.
Historically, legal clients have not felt in control of their situation. Whether they were overwhelmed with legalese or unaware of what their bill would look like, this resulted in mistrust. Instead of attorneys outlining an hourly rate and clients feeling like they are handing over a blank check, an alternative law firm pricing strategy can put the ball back in the client’s court and help them understand what they need to do in terms of budget and paying for legal services.
In terms of proactivity, the internet allows clients to search for law firms and attorneys until they find the right one for them. Clients are willing to wait to find the right firm for their needs–some of which will be financially related. If you are upfront about your pricing method and its client-centered, a potential client researching your firm is going to be more likely to reach out to you for more information.
Alternative pricing models also have a greater reach. Clients in financially precarious situations may be unable to hire an attorney with traditional, billable hours. However, they may be more likely to seek guidance with other pricing options.
When you put your client at the center of your law firm strategies, financial and otherwise, you will attract more clientele. If you are considering changing your firm’s pricing model, you will need to consider factors like your expenses, competition, and more.
What to Know About Changing Your Firm’s Pricing Model
Changing your law firm’s pricing strategy can seem overwhelming. To make the change more manageable, or if you were still trying to decide if alternative law firm pricing is suitable for your firm, you need to consider the costs, your competition, and your clients.
Consider Your Costs
How many clients do you need to take on to generate enough revenue to cover your costs and retain a profit? If you have not analyzed your firm’s finances in a while, you will want to break down all of your expenses in relation to your earnings. Pinpoint an average cost per client versus revenue. Once you have that figure, you can determine which pricing structure will work best for your firm now and in the future.
Take a Look at Your Competition
It is essential to take a look at what your competition is doing. While you may not be able to determine what your competitors are charging, you will likely be able to decide which pricing strategy they use. Whether you are looking exclusively at local competition or you are taking into consideration the firms you are competing with online, you want your price to be competitive and reflect the value of your legal services.
Remember Your Clients
Historically, what type of pricing has seemed reasonable for your clients? Moving forward, do you think that amount will change? It is essential to remember your client when changing your law firm pricing. Even if your primary goal is to increase your law firm’s revenue, you need to remember to balance your pricing with the value of your service.
How Law Quill Can Help
Legal fees do not have to be complicated. With a bit of research and financial analysis, you can determine which method makes the most sense for your firm, clients, and goals. No matter what alternative law firm pricing strategy you implement, it is crucial to keep the approach client-centered. This will result in happier clients and more profit. If you are thinking about alternative pricing but are not sure where to start, Law Quill can provide the resources you need to make the best decisions for the future of your business.
We are here to help and would welcome the opportunity to visit with you for free regarding your law firm website’s content, and how we can take these tasks off your plate! Schedule a free visit with us by scheduling a quick phone or zoom call at your convenience on our calendar today. You can also email us at support@lawquill.com.
