Volume 19, Number 6
September 2002
PRACTICE MANAGEMENT
INCREASING YOUR FEES
By Edward Poll
When to raise fees. Although there is no perfect time to raise fees, use these tests to assess whether it's time you did.
- In big-ticket or break-the-company cases, price doesn't
seem to matter. The client's options are limited and the
perception of need, and therefore value, is high.
- You have more business than you can handle without
expanding but do not want to expand. You may lose a few
clients, but you generally won't care because you are already
at your desired maximum.
- Clients say your rate or total fee is more than fair. At
this point, you can conclude that your fee structure is at the
lower end of the fee spectrum in comparison to your
competitors. It seems there is room to raise your fees with
minimal client resistance.
- Other lawyers send you business because the client won't
pay their rates. These lawyers are unwilling to accept the
lower fee that the client expects to pay them. Why do
you?
Each of these scenarios involves a selection process by the client. Those clients who do not want to pay the higher fee will seek other counsel. Those who value your service regardless of higher fees will remain with you. Accept the fact that some clients will leave if you raise fees, which can create new opportunities:
- With a reduction in your client base, you can work less at
the same average revenue.
- You can take on new clients at the higher rate, which
raises your average revenue per client.
- You generally will receive or can agree to take only
interesting work at the higher rates.
- You will have extra time to upgrade your marketing
efforts.
Clearly, a temporary loss in the total number of clients often
restabilizes within a short time-and at a higher income level.
However, you may want to consider another set of indicators that
forecast when raising rates is not the best idea:
- If a client resists a fee increase and the client or the
matter being handled is important to you, you may want to
obtain an agreement to a fee increase at a certain date in the
future.
- If time is of the essence for resolving a particular
matter. Your client will see it as attempted
extortion.
- You already agreed to a retainer. Most retainers are
intended to cover the entire cost of the matter or to cover
services on a monthly basis without reference to actual hours.
Clients will be annoyed if you say you cannot work any more
this month because you have exceeded your original estimate. A
retainer is a fixed sum-you keep the difference when you work
less than the estimate, and the client benefits when you work
more. If the work continues to be out of balance with the
retainer for an extended time, raise the issue with your client
before increasing the retainer.
How much should you raise fees? Many jurisdictions have
specific rules concerning fees. Rule 4-2000 of the California
Rules of Professional Conduct, for example, provides that "A
member shall not enter into an agreement for, charge or collect
an…unconscionable fee." The rule defines unconscionability
by saying that all the facts and circumstances existing at the
time are to be considered, including the following: amount of the
fee in proportion to the value of the services performed;
relative sophistication of the member and the client; novelty and
difficulty of the questions involved and the skill requisite to
perform the legal service properly; likelihood, if apparent to
the client, that the acceptance of the particular employment will
preclude other employment by the member; amount involved and the
results obtained; time limitations imposed by the client or by
the circumstances; nature and length of the professional
relationship with the client; experience, reputation, and ability
of the member or members performing the services; whether the fee
is fixed or contingent; time and labor required; and informed
consent of the client to the fee.
Assuming your current fee structure passes the conscionability test, modest fee increases will not cause a disciplinary problem. The only remaining issue is whether your fee increase will pass the market test. Other things being equal, the smaller the fee increase, the easier it is for clients to accept. Therefore, a general plan is to increase your fees frequently in modest amounts. Additionally, consider the following factors:
- Growth pattern. As you continue to grow, you can afford to
be more selective about clients. Raising fees is a way to let
your clients self-select and determine who will get your
services.
- Success. Success tends to build on itself, and the results
of an ill-advised or unacceptable fee increase can be more
easily overcome.
- Strategic plan. Do you want to be known as a low-priced
volume leader or a top-of-the-line exclusive legal services
provider?
- Nature of your practice and clientele. An economically
sound client will be less burdened by increases and accept them
more readily.
- Competition. What are the going rates in your geographic
and practice areas?
Implementing the hike. The next step is to
determine the best way to inform clients of the new
fees.
- New clients. This is the safest client base for introducing
new fee scales, because of course they have no comparison. It
is also a good place to test the waters without being afraid of
losing current clients. Do not tell them this is an increased
rate-no explanation is required here.
- New matters for existing clients. Start by increasing rates
on new matters for existing clients who are not your bread and
butter. Be sure to adhere to your jurisdiction's rules covering
fee increases for existing clients, which usually involve
amending the engagement agreement.
- Major existing clients. After you feel confident with these
preliminary forays, roll out your new fee structure to all
remaining clients. Always talk personally with clients in
advance of a fee increase. One strategy to consider with
significant clients is to confirm that your fee increase will
fit within their budget. If they say no, consider compromising
by maintaining the current fee for a specified time and
implementing the increase after that.
- Corporate clients. You may find that, in general, it is best to treat corporate clients differently than individual clients. You must be more sensitive to legal services budgets and more attuned to the politics of the organization and how you operate within it.
Edward Poll is a lawyer and certified management consultant in
Los Angeles.
This article is an abridged and edited version of one that
originally appeared on page 36 of Law Practice
Management, April 2002 (28:3).
Enjoy the benefits of membership:
- Award-Winning Periodicals
- Special Member Discounts
- Practice Area Committees
- Continuing Legal Education
- Networking Opportunities
- Leadership Opportunities
