When Is It Fair To Charge Different Clients Different Rates?
Sometimes, it makes sense to charge different clients different rates.
As many people already know, lawyers often charge varying rates depending on their experience, training, education, and other factors. Indeed, in some situations, lawyers might charge a client four or five times more than what another lawyer might charge depending on the circumstances. In many instances, lawyers even charge different clients of theirs different rates depending on the circumstances. Some might think it is unfair to charge clients different rates when it is the same lawyer handling the work for the different clients. However, in my experience, in a few situations, it makes sense to charge different clients different rates.
Volume Clients
At many law firms, lawyers may charge clients lower rates with the understanding that the client will give them a large amount of legal work which makes up for the lower rate. In a number of other industries, the price that clients pay for goods and services might be different depending on the volume involved, and this is also true in the legal industry. Since it is generally more efficient to work with fewer larger clients than many smaller clients, and since law firms might make up the difference in rates through more work, charging volume clients less seems reasonable.
I first encountered this aspect of fee arrangements when I was working at an insurance defense firm a long time ago. The firm charged much less for insurance defense work than I had been used to at different firms. Partners at the firm explained that some insurance companies had given the firm hundreds of cases to handle, so it was fine accepting a lower rate for the volume of additional work. When the firm worked for one-off clients, it usually charged more, but this seemed fair as well since the firm was less familiar with these one-off smaller clients, and it was generally less efficient to work on such matters. If law firms agree with clients on a lower rate in exchange for a higher volume of work, this seems reasonable to me notwithstanding that other clients might be charged more.
Low Bono
Most people know pro bono is when a lawyer works for free in order to fulfill a charitable cause. Fewer people might be familiar with the term “low bono” — when a lawyer discounts rates for clients in order to help reduce the burden of legal fees for charities and underserved clients who may not have the resources to pay a lawyer a typical rate. It is usually much easier for lawyers to do low bono rather than pro bono work, especially lawyers who work at smaller shops and cannot spread the hit of not accepting a fee around a larger operation.
If a lawyer served a nonprofit or other underserved client, it is fair for them to charge less than their normal rates. The legal profession should have a public interest component to it (although this might just be pie-in-the-sky optimism). Typical clients of the firm should not be offended if they discover that nonprofits and underserved clients are paying lower legal rates due to the circumstances of their particular cases. If lawyers haven’t considered low bono work before, I highly suggest that attorneys consider it. Not only does it give lawyers a chance to contribute to a solid cause, it can also lead to additional business development opportunities in the right circumstances.
New Companies
Earlier this week, I published an article about how lawyers should nurture startup companies and other smaller clients, and perhaps should give them a break in terms of fees. Startups and smaller companies often do not have large budgets so legal fees can have a huge impact on their bottom line. Moreover, if a lawyer nurtures startups or smaller companies, they may one day become larger companies, which can send large amounts of legal work to a law firm. Over the course of my career, I have seen otherwise smaller companies and startups become larger operations, and since they were grateful for a break on fees in the beginning, they might be likely to refer more work to a law firm at higher legal fees. Of course, everyone should use their best judgment on how far of a discount they should give smaller companies, but this can be a rewarding strategy.
All told, law firms like other types of businesses may charge different rates to different clients. Lawyers should consider a few circumstances when deciding if they will charge different clients different rates.
Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.
