You know how complex pricing services can be if you own or operate a law firm. What you charge for your services plays a significant role in how potential clients view the value of those services and whether they decide to seek your help. Law firms of the past relied on the billable hour, but alternative law firm pricing is gaining popularity. Additionally, having alternative law firm pricing can be an additional way to market your law firm as distinct from your competitors.
Changing your law firm pricing strategy can seem overwhelming, but the benefits are often worth the shift. While you ask yourself what you should charge, whether your prices are too high or low, or what your competitors are charging, you should also ask yourself if an alternative pricing model could increase your law firm’s caseload and overall revenue.
Phasing Out the Billable Hour
Billable hours were popularized in the 1960s. Back then, lawyers would keep track of the hours spent on individual clients’ folders. Today, most law firms keep track of billable hours using computer software. As with any billing strategy, established hourly rates have pros and cons.
Pros
- Billable hours were initially favorited as a way to increase profits
- Billable hours make it easy to predict profits.
- Paying clients can get an idea of what their bill may look like.
Cons
- Unethical attorneys may charge clients for unrelated tasks.
- Clients may be unable to budget for hourly rates if their attorney does not know how long their case will take to manage.
- It can be challenging to keep track of billable hours without a dedicated system or program.
As the billable hour becomes viewed as unfavorable today, many law firms are looking into alternative fee arrangements. A suitable billing method can benefit both clients and attorneys. Before you determine which alternative pricing method is best for your Law Firm, you should consider the process of changing how your law firm handles billing.
What to Know About Changing Your Firm’s Pricing Model
To ensure your law firm easily adjusts to a significant billing strategy change, there are a number of elements to consider. Overall, you will want to take a look at any related expenses, what your competition is doing, and how your changes could impact your current and future clients.
Calculate Your Expenses
Consider the current expenses related to your billing method. Is there software you use? Do you have an employee who handles your billing? Take a look at your firm’s finances and start breaking down your costs. Once you have a comprehensive understanding of the expenses related to running your law firm, you can determine which alternative pricing method will benefit you and your clients the most.
Evaluate Your Competition
Take a look at what your competition is doing. It is unlikely you will be able to figure out their exact pricing method. You can learn a lot from their website. No matter which alternative method you ultimately choose, you will want your pricing to be competitive and reflect the value of your services.
Consider Your Clients
The type of law you practice, where your firm is located, and the average tax bracket of your clients can tell you a lot about what billing strategy is best for your business. Do not forget the importance of balancing your pricing with the value of your service and what your clients can afford.
Alternative Law Firm Pricing Models
There are three broad-based strategies that law firm pricing methods fall into. The first is value-first, which is when legal services are priced based on the value provided to the client. The second, cost-first, establishes the cost of legal services on ensuring a margin of profitability. The final strategy is called competition-first, where legal services are based on competitive prices in an effort to provide more value. It is essential to keep those strategies in mind along with your business’s goals as you are considering a new pricing model. The most popular alternative pricing models for lawyers include:
Flat Fee Pricing
Flat fee pricing is best for law firms that offer predictable legal services, like estate planning or no-conflict divorce. Flat fee pricing essentially provides clients with a menu of your services with fixed prices. Your clients will know what to expect regarding their final bill, and you will be able to best predict your revenue based on the types of cases and how many you accept.
Contingent Pricing
Personal injury attorneys frequently use contingency fees. Under a contingency fee, an attorney charges a client a percentage of their award. However, this only applies if the attorney achieves a positive outcome. In the event of a negative outcome, the client does not pay a penny.
Retainer Fees
Retainer fees, sometimes called evergreen retainers, are helpful for attorneys who work with high-profile clients. Clients pay a specific amount at the start of their contract. That money is placed into a trust, which the lawyer draws from to pay themselves as the case progresses. The amount of the retainer may be based on the services provided, attorney experience, or the size of the firm.
Sliding Scale Billing
Sliding scale billing is similar to hourly billing and flat fees. However, clients agree to pay for legal services they can afford based on their income instead of a standard rate. This method is popular in low-income areas where attorneys look for ways to make their services more accessible and affordable to those who need them most.
Subscription Billing
Some attorneys have repeat clients that seek the same services repeatedly–whether that be on a scheduled basis or as needed. In that case, subscription pricing may be a good option. Subscription pricing is most beneficial to law firms that manage legal affairs for businesses. The law firm can establish a monthly subscription fee, and clients will know their matters are being handled.
Digital Marketing: Next Steps
Legal matters may be complex, but legal fees do not have to be. No matter what alternative law firm pricing strategy you implement, it is crucial to keep the approach client-centered. With a bit of research and financial analysis, you can determine which method makes the most sense for your firm, clients, and goals.
Annette Choti graduated from law school 20 years ago, and is now the CEO & Owner of Law Quill, a legal digital marketing agency focused on small and solo law firms. Law Quill is the only legal digital marketing agency that provides unique, SEO-optimized content, pre-packaged content, and courses for lawyers to learn SEO themselves through Law Quill Academy. Annette used to do theatre and professional comedy, which is not so different from the legal field if we are all being honest. Annette can be found on LinkedIn or at annette@lawquill.com.
