Billable Hours, Money, Small Law Firms

The Practice: Setting, Earning, and Keeping Fees in Small Law Firms

How should lawyers at small law firms go about setting, earning, and keeping their fees?

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Ah, nothing brings around the lawyers of today like the talk of money. One of the most popular Google searches by law students and lawyers is “how to make money as a lawyer.” I rarely see searches for “how to cross examine the expert witness,” or “building a reputation, one case at a time.”

It’s all about the cash.

So here it is, here’s your red meat:

Charging “what everyone else charges” is for losers.

Good clients know you get what you pay for. Cheap, annoying, time-sucking, Bar-complaint-filing clients try to own someone for nothing. If you want the same clients everyone else has, charge the same legal fees. You can be Wal-Mart, or you can be Saks. More people shop at Wal-Mart, but people looking for quality shop at Saks, and they know the difference. They go in, they see something they want, and pay for it (without a payment plan). (And don’t tell me “credit cards are payment plans.” The seller gets the full amount, the buyer makes payments to the bank.) Saks doesn’t have “low prices,” and customers aren’t going there for low prices. They’re looking for quality. Price is secondary….

You can have ten $1,000 cases, or one $10,000 case. Part of the difference is whether you practice in shorts at Starbucks, online selling documents, or actually have a door, where behind that door is a desk, and a pen or two. The difference is also whether your name is one that causes people to say “good lawyer.” Yes, it takes time to build a reputation, but good reputations bring good clients, and good clients bring good fees. You want quick money, attract bad clients with little money who will make you hate what you do. You’ll make money, but it’s a crappy way to practice.

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If you don’t have the time to build a reputation, I can’t help you. If you’re scared to charge more than the four guys down the street, you’ll always be another dime-a-dozen lawyer. If you can’t sell value to the client, you are worthless. Figure out what makes you different, and make it apparent to the client.

The billable hour is not dead, will never die, and must be a part of your fee schedule.

I’m not telling you to charge by the hour — I try not to. But whether your fee is going to be a closed-end flat fee, combination of contingent and flat, or straight hourly, at some point, someone is going to want to know how you arrived at that amount. And whether it’s the client, a judge, or the Bar, it’s nice to say: “My hourly rate is _____, now pay me.”

Determining your hourly rate.

Start with the cost of running your office for one hour (determined by cost of rent, utilities, staff, insurance, tall or venti coffee, etc.). So let’s say rent is $1,000, other overhead is $1,500 a month (we’re talking solo, no secretary, no frills). Eight hours a day, 20 days a month. So $2,500 divided by 160. Your hourly cost is about 15 bucks. How does $150 an hour work out for you? It’s probably lower than you hear most lawyers charge these days, and even if you don’t “bill” 160 hours a month, you’re still ahead of the game if you bill half that. (By the way, hourly rates are all BS. They’re really determined by the formula: “What is everyone else charging?” Trust me, ask any lawyer.)

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If your state Bar allows “non-refundable,” be non-refundable.

I’ve never understood, outside of a Bar requirement, why lawyers don’t embrace “non-refundable” fees more often. Who taught you that you are merely a place to hold money for a client until they ask for it (or threaten) back? If permitted, at least some portion of the fee should always be non-refundable. You should also consider the term “earned upon receipt,” and make clear in the retainer what is earned, and when. Contracts are great. We’re lawyers, we should understand that.

So if allowed, put in your retainer that the fee is X, and a portion is non-refundable and earned upon receipt based on “the initial consultation, opening of the file, preparing initial documentation, initial research, etc.”

Final word on fees.

Don’t negotiate, don’t undercut your “competition,” don’t take payment plans, and don’t reduce your fee because things are “slow.” If your fee structure just isn’t working, change it, but change it across the board, not just per client. If the main concern of the client is the fee, then it doesn’t matter how good you are. If the main concern of the lawyer is getting the cash, then it doesn’t matter to you how good you are, either. You can always make money as a lawyer — it just depends how you want to make it.

Brian Tannebaum will never “get on board” at the advice of failed lawyers who were never a part of the past but claim to know “the future of law.” He represents clients, every day, in criminal and lawyer discipline cases without the assistance of an Apple device, and usually gets to work (in an office, not a coffee shop) by 9 a.m. No client has ever asked if he’s on Twitter. He can be reached at bt@tannebaumweiss.com.

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