Law Quill | #039 - Alternative Fee Pricing For Law Firms

#039 – Alternative Fee Pricing For Law Firms 

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Law Quill | #039 - Alternative Fee Pricing For Law Firms

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The Legal Marketing Lounge

Alternate Fee Pricing For Law Firms

Hi, I’m Annette Choti, an attorney of 20 years that created Law Quill, a marketing agency for small and solo law firms. Join me to learn how to grow your law firm through digital marketing strategies, SEO, social media, and more. Let’s get that law firm of yours more online visibility, a larger digital footprint, tons of organic traffic and more clients. I’m so excited. You’re here, click that subscribe button and join me in the Legal Marketing Lounge.

Hello, how are you? I hope you’re having a good day. I hope that this podcast makes it even better. I’m happy that you’re here. Hopefully you’ve subscribed. So you get this right when it’s hot off the press. Like us. It’s not a press. It’s whatever a podcast comes off of. So thank you so much for being here. Today we’re going to talk about something really different, which is alternative law firm pricing. And it’s not just about flat fees, so stay tuned. But in the meantime, I want to give a shout out to our sponsor, which is Click Magnet, The Ultimate Digital Marketing Guide For Law Firms. It’s the best-selling book that you can get on Amazon. And also it is in paperback as well as Kindle. Let’s listen to a review from Faye ELB from her Legal Global podcast: “Lawyers aren’t taught marketing in law school and it can be frustrating to try and develop key skills with a multitude of online sources. Learn how you can compete, especially if you are a smaller firm with a more limited marketing budget. Even if you decide to hire someone, knowing what to ask what to expect. And the results you can achieve will ensure you get the right expert, a resource you will want to refer to time and time again, written by an attorney for attorneys well done.”

Thank you Faye for that great review. And now let’s just get into it. We’re talking about alternative law firm pricing, and pricing legal services. No matter what practice area you’re in, is a very complex matter if you own or operate a law firm. And you probably do if you’re listening to this, you need to really put significant thought into billing, as it impacts how potential clients are really seeing the value of your services. And frankly, whether or not they choose to pursue representation by you. So while many law firms still use the traditional billable hour, right, those are scary words. That’s a scary phrase right there, billable hour. Alternative law firm pricing is becoming more and more popular. And a lot of law firms are embracing this.

So if you are considering revamping your firm’s pricing strategy, it’s really essential to know about what your options are. And that way, you can just ask yourself the right questions like How much should you charge? Are your prices too high? Are they too low? What are your competitors charging? And what should you do about it? Should you be higher or lower or different than they are? And once you have the answers to those questions, and you have a comprehensive understanding of all of your options, regarding alternative pricing, you can determine which legal pricing strategy is best for you.

Now, this, frankly, doesn’t have anything to do with digital marketing, right? Wrong. The reason is, because what you decide to do with your alternative law firm pricing can impact your branding. And we’ll talk about that as we go through these different alternative pricing models. But at the end of the day, you as a law firm really want to differentiate yourself from your competitors, right. And one way to do this is through your law firm pricing. And that can be part of your brand. It can be on your website, you can talk about it on social media, and really differentiate yourself from your competitors. So the reason that I’m talking about this is not necessarily because I do business development strategy for law firms. It’s because I can take something that is different about your law firm that is a benefit or an advantage, or something that just differentiates you from your competitors and really make that soak into your branding so that people remember that remember you and then come hire you instead of yoga. competitors.

Billable Hour: The Traditional Way

So let’s talk about the traditional billable hour. First, let’s just get that out of the way. Because that has been really the most common law firm pricing model since the dinosaurs, right? What least since the 1960s. So, you know, in this model, as we all know, lawyers keep track of the hours that they spent on an individual clients file or folder. And it really was a way that they thought they could increase profits, because it’s sort of easy to use, well, sort of easy to use. And it’s easy maybe to predict is what they thought. But as with any pricing strategy, and this is with all of them that I will talk about today, there are disadvantages as well.

The most notable is the ability for unethical attorneys, not you, of course, you’re awesome. But unethical attorneys to sort of charge clients for tasks that are not directly related to their case or sort of, you know, pad their hours on a particular case, it can be difficult for clients to budget for hourly rates, because they don’t really know how many hours their attorneys are going to need to dedicate to their case. So in an effort to better meet client needs, many law firms, at least recently have been really seriously considering alternative fee arrangements. Because that can benefit not just the client, but the attorney as well.

Alternative Pricing Models

So let’s talk about these alternative pricing models. There are basically three that are the most common and frequently used, and that a lot of law firms are going to so we’re going to talk about those. They are value first, which is that legal services are priced based on the value provided to the client. There’s cost first, which is legal services are based on the attorney costs to ensure that there’s a margin of profitability there. And then there’s competition first, which is that legal services are based on competition your competitors prices, to provide a better value for that price. So looking at those three, the very first one that is very common now is flat fees.

Flat Rate Pricing

If you offer a number of similar legal services that encounter slight variations, establishing a flat rate of flat fee rate might be for you think of flat fee pricing, kind of like a restaurant menu, your clients choose what they want to pay off of the menu, and then they pay that listed fee. Flat rate pricing really works best for services like estate planning, or immigration applications, maybe even bankruptcy or business law that might establish or create an LLC. So in these circumstances, you kind of are doing repetitive work, and then inserting a law firms name, obviously, you’ll have to do a little bit of legal research.

But there’s not the same time intensive dedication as if you were doing some sort of really serious criminal case that is very unique, with lots of evidence, and it’s going to a jury trial. Obviously, you really can’t do flat fees for that. But you can do flat fees if you are an estate planning attorney if you’re doing sort of the same types of wills or trusts. So if you have a flat fee arrangement, your clients are going to know exactly what to expect in terms of billing. And this is a really great selling point. And not only that you can actually generate a more accurate profit prediction based on the number and types of cases that you accept.

So this is absolutely something that a lot of law firms are going to. And frankly, as a consumer potential clients look at this and it gives them comfort, because they say okay, I’m going to spend x amount of dollars on my estate plan or X amount of dollars on my immigration application. And then obviously, if there are extenuating circumstances, you build that into your contract and say, well, these additional services or more, but at the end of the day, the clients really do know kind of exactly what they’re going to pay. So it gives them a sense of security, that it’s not anxiety producing regarding how much they’re going to have to pay their attorney.

Contingency Fee Pricing

The second type of alternative fee arrangement is contingency fees now, contingency fee pricing is not new, and it’s very popular among who we all know personal injury attorneys. In this model, obviously lawyers are charging a percentage of their costs alliances award so long as they obtain a positive outcome. And then the attorney, you know, if the attorney loses the case, the client doesn’t pay anything.

And contingency fees make sense in the areas of law where clients might not be able to afford legal assistance, or where predictable billing benefits both the attorney and the client, but I’m gonna say something really different here. We all know what the percentages that typical personal injury attorneys take, there is a way to perhaps make a modification on that, or even charge a little bit less, I’m not saying you need to do it, it’s just something to consider to make yourself different from your competitors. Okay.

Maybe also, there are other areas of law that you could consider using a contingency fee, other than personal injury law. Again, I’m not saying it’s right for you, I’m just saying that maybe this would be a differentiator. I do know, of a personal injury attorney who takes a percentage that is quite less than what the national averages. And he gets a lot of clients that way. Because he is just saying in his marketing, that he really believes that this money belongs to the potential client, that it is theirs because of the injuries that they sustained. And he doesn’t want to take from that. Now we can all have an opinion about that. I’m just, you know, don’t shoot the messenger here, I’m just telling you what that particular personal injury attorney is doing in his branding, in order to differentiate himself. And frankly, it’s working really well for him. So that is another option.

Evergreen Retainer

Another type of alternative fee arrangement is an evergreen retainer. So an evergreen retainer is when a client pays a specified amount up front. So it’s like the exact opposite of a contingency fee. The money is then placed into a trust account. Well, it better be placed into a trust account, right? It needs to be. And then as the case progresses, the lawyer sends invoices and pays themselves out of that trust. So the goal is that the attorney will never take more out of that retainer, then they say they will. So attorneys working with commercial clients often opt for this billing model.

Retainer fees can range right from 1000s to hundreds of 1000s of dollars. And the amount is typically based on the services offered. But it is definitely something to consider because other types of legal services and law firms are using this model. Again, it gives a bit of a comfort to the person that’s paying this all up front, because there is sort of this indication that hopefully, the services that they’re paying for are not going to go past this retainer, unless you know, you have some sort of an agreement that this is just the first retainer and then there will be another retainer later.

Sliding Scale Pricing

Another type of alternative law firm pricing is sliding scale. Sliding scale pricing is a modification to hourly rates and flat fees. And so instead of a standard rate, your clients would be paying for legal services, based on their income attorneys in low income areas could adopt this model to make their services more affordable and accessible to the local population. Again, this is going to be something that only is really relevant to certain legal practice areas. And it’s important for me to say right now that you should not charge the very least that you think you can make, you went to law school, you learned a lot.

You have experience, both academic and professional, and you should be paid for that experience. One of the things that a lot of lawyers are doing now is charging for consultations. Because what’s happening is you know, we all know it people come in, they try to squeeze as much free information out of a free consultation and then you never hear from them again, and you’ve wasted an hour or an hour and a half visiting with them and giving your expertise and your advice.

So just know that my position is and always will be that you should charge for the value that you are giving, whether that’s either in a consultation or your hourly rate, or whatever type of fee structure you decide to create. That’s really important. Being the cheapest is not going to necessarily get you ahead. And it may actually do the opposite. There have been studies that show that oftentimes, consumers and potential clients will not choose the cheapest because they feel sceptical. Why is that person so cheap, are they not as good as those that are charging more. So it’s a value consideration to think about as you’re making these decisions.

Subscription Pricing

Another type of fee arrangement is a subscription pricing. And let me tell you, this is hot. A lot of law firms if it works with the legal services that you provide, this is just really hot. If you have repeat clients that are seeking the same legal services on a scheduled or an as needed basis, subscription pricing is really an option. It is very useful for law firms that manage the legal affairs for businesses. And what it does is subscription pricing offers client services for a monthly subscription fee.

So law firms operating under this model, really do have a better control over their finances, because you know what’s coming in every month in terms of billing. But let me give you another idea of how to use subscription pricing. There are a lot of law firms that are considering offering their legal services or their legal advice on a subscription pricing basis. And this is something that goes for not just businesses, it can go for estate planning attorneys, immigration attorneys, there are a lot of legal areas out there, where people would be interested in paying a subscription fee, in order to have the immediate and direct contact of an attorney ready for them.

So just consider that as part of your overall options for fee arrangements. There are even people who are using this subscription model to have quarterly or monthly zoom meetings calls with clients webinars. This is very popular in business law, especially for lawyers who are working with entrepreneurs, a lot of entrepreneurs have very similar legal questions. And so if they jump on to sort of a subscription pricing model, they can receive a lot of business and legal guidance, a lot less expensively than if they were paying an attorney by hour. And then the attorney, it’s great for them, because they are simply providing this advice on a monthly basis to all of their clients that are on this sort of monthly subscription package. And it just is really a great benefit for both sides. And it is definitely something to think about.

Why Alternative Fee Pricing Helps

So again, if you are considering any kind of alternative law firm pricing, you will definitely start attracting more clients, I think because you can really incorporate this into your branding, the attorney client relationship has altered in the recent past. And clients, unfortunately, are oftentimes not confident in their choice of an attorney. And you need to deliver compelling value at a fair price to keep up and then you need to explain why you are charging these particular rates in this particular fashion. If you are offering alternative law firm pricing. Remember, the price is not enough to retain new or repeat clients. But you should definitely consider what your pricing structure is and whether or not, there might be something better out there for you. alternative fee arrangements can absolutely set your firm apart from the rest, because you are really at that point, showcasing that you are sort of client centric, if that makes sense that your alternative law firm pricing is not really all about you.

It’s all about your client, how you can best serve your client and make payments easier for them or more accessible for them. Research suggests that today’s legal clients really like to be in control and they are willing to take proactive steps to get the legal help they need. And they may even be more prone to do that. If all of the pricing is very easily understandable and accessible. So you can encourage. Roll. And with your clients, you can encourage that client control and help with proactivity. With the right pricing strategy.

Historically, legal clients have not felt in control of their situation, especially with the billable hour, you can see that right, we know that that billable hour can be expensive, and we have no idea how many billable hours are going to be in our future. And they might be overwhelmed already with their case, they’re coming to you because they have probably a significant problem. And maybe they’re overwhelmed with legalese. And on top of all of that, now, they’re unaware of what their bill is going to look like. It just results in a lot of anxiety and stress and potentially even mistrust. So this is an opportunity for you to really meet your clients where they’re at, and, and become sort of the kinder, gentler law firm, right, and help them understand what they need, how much they’re going to be paying, how they will be able to do that within their budget, and then still be able to obtain the legal services that they need. And again, you can be incorporating all of this into your branding structure, and into your branding model into your website into your social media.

The Three Cs Of Pricing Model

So if you are going to consider changing your law firms pricing model, look, that can seem overwhelming. But to make the change more manageable. If you are trying to decide if it’s suitable for your law firm. Just consider the costs, your competition and your clients. So the three C’s. The first is consider the cost how many clients do you need to take on to generate enough revenue to cover your costs within this new pricing model and retain a profit. Now, if you have not analyzed your firm’s finances in a while, you probably want to do that. And you want to break down all of your expenses in relation to your earnings. And you know, frankly, it’s getting to the close of 2022. So now would be a good time to do that.

But really, anytime you’re listening to this podcast is a good time to do it. You want to pinpoint an average cost per client versus your revenue. I know we were told there would be no math, right? When we became attorneys, but you know, once you own your own law firm, you’re everything right? You are having to deal with finances, social media, marketing, sales, it’s everything. So back to the costs, once you have those numbers figured out. It will help you determine which pricing structure would work best for you for your firm now and in the future. And, you know, maybe that’s just staying with the billable hour for you, it really is going to depend. But the point of this podcast was really for you to at least just consider maybe what the other options are, and maybe if they’re right for you.

So the second C is to just take a peek at your competition, it’s really important to see what your competition is doing, and how they might be out leveraging or out marketing you. And that might be in terms of their alternative law firm pricing model. So while you might not be able to determine exactly what your competitors are charging, you will probably be able to figure out what their pricing strategy is, especially if they’re using an alternative pricing strategy, because they are probably going to put that in their branding. So whether you’re looking exclusively at local competition, or if you’re taking into consideration, you know, other firms you’re competing with online or nationally, you really want your price to be competitive, but also very important, reflect the value of your legal services. So you know, you want to consider your costs, you want to consider your competition.

And then finally, most importantly, maybe you want to consider your clients. Again, historically, what type of pricing has seemed reasonable for your clients? What makes them the least anxious moving forward? Do you think that that amount is going to change? I mean, I know you don’t have a crystal ball, but what do you think is happening in your particular legal industry in your specific practice area? It’s really essential to remember your client, when you’re changing your law firm pricing, even if your primary goal is to increase your law firms revenue. You know, there’s a delicate balance between pricing and then the value of your service and what your client will pay. It can be a challenge. And I think it’s important to visit with people who have a lot of experience with law firms and finances. And, frankly, financial strategies, and innovative strategies financially for law firms. I think that’s really important.

And I think you need to do you know, a bit of an autopsy on what has happened with your law firm in the past financially, and whether or not that’s working for you, or whether or not you want to consider other alternative pricing models.

How Law Quill Can Help

And if you do, or if you need help with any of your marketing strategies at all, and including any of the ways that you are unique, and way cooler than your competitors, if I do say so myself, I would love to visit with you. If you ever have any questions, or comments, or if you want to visit about your digital marketing strategy, I would be more than happy to do that with you. You can reach out to me at annette@lawquill.com You can find me on LinkedIn, you can find me on my website www.lawquill.com.

And at the end of the day, I think it’s just important to consider these alternative law firm pricing models and to see whether or not that would work for you and how you could incorporate that into your branding and all of your marketing. Well, I hope that this was informative for you today. And if it was, I hope you subscribe to the podcast please and leave me a little review if you have a minute. And of course I want to thank our sponsor, Click Magnet, The Ultimate Digital Marketing Guide For Law firms which you can pick up on Amazon as paperback or Kindle and as always, thank you. Thank you, and I will see you the next time in the Legal Marketing Lounge.