Setting your fee schedule can feel like a daunting task especially if you’ve never done it before. For first time solo-practitioners, there may also be a sense of insecurity when you’re not sure if you’re charging too much or too little. Fortunately, there are methods to pricing that can help you create a fee schedule that works for your customers and your bottom line.

Pricing Triad

There are three types of pricing that your fee schedule should be based on:

• Cost-Based Pricing
• Competition-Based Pricing
• Value-Based Pricing

Cost-Based Pricing

Cost-based pricing uses the business’ operating costs to determine how much you must earn to at least break even. You would add up the total annual cost of operating your law firm, including but not limited to the following expenses:

• Rent
• Utilities
• Supplies
• Insurance
• Taxes
• Staffing

You would then take that number and divide it by your total number of annual billable hours. The figure you come up with is your hourly cost to operate the business. You will need to bill at least this dollar amount per hour to break even in your law firm. Your fee must increase from this base amount if you want to realize any profit.

Competition-Based Pricing

Charging too little can harm your brand while charging too much can drive away business. That’s why it’s important to understand the market—what are your competitors charging? But to get that answer you must understand that your competitors are those law firms similar to you in the most important ways:

• Size – Firms that are just one attorney working alone will charge differently from a large 500 person law firm.
• Practice Area – The price bankruptcy attorneys charge may be significantly different from what family law attorneys charge.
• Geographical Location – A law firm located in New York will charge more than a law firm located in a small rural town.
• Pedigree – A law firm staffed with Harvard grads and attorneys with 20 plus years experience will have the pedigree to charge more than a firm staffed by mostly new law school grads.
• Setting your fees in accordance to what your most similar competitors charge is a smart move especially when you’re just trying to establish yourself.

Value-Based Pricing

Value-based pricing is where you begin to make your real profit. What type of value do you bring to the table for customers that other law firms don’t? If you can pinpoint that value and determine how much that value is worth, you can adjust your fee schedule so that you are properly compensated for that value.

Other Considerations

You should also consider the type of customers you’re working with. Can they afford your rates? If not, that doesn’t mean that you should lower your fees, especially if doing so means that you won’t meet your costs or make a profit. What you should do is look for the type of customers that can afford your services.

All three of the pricing methods mentioned should be combined to create a fee schedule that will ensure the costs of doing business are covered and that you make a tidy profit. If you’re operating without a solid fee schedule you’re probably operating in the red and/or leaving significant money on the table. Don’t let yourself miss out on growing your law firm by shying away from the hard questions you must ask about pricing.

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Lynn Luong is the Digital Marketing Manager for Smokeball, a case management software that increases productivity and efficiency for solo attorneys  and small law firms to become more profitable.  Lynn has over 8 years of experience in marketing with a focus on digital by developing successful strategies and managing many areas of marketing.