How Much Do You Deserve to Be Paid?
When setting billing rates, consider what you deserve—and what is fair.
Setting your billing rate is not a simple task, as there are several dimensions to the analysis. The simplest approach is to see what your competitors are charging, and match those rates. But even this is not so simple. It’s not always obvious who are your competitors, or what aspects of your work should push you higher or lower than what they are charging. Are you looking to bring in new clients quickly, or can you afford to have folks walk down the street because they think your rates are too high? Are you expanding into new areas, such that your performance may be less-than-stellar at first, and thus your fees should be reduced accordingly? Or, are there particular reasons for you to adjust your fees? As I often tell my clients, I charge 20 percent less than my competition because I rarely have unpaid fees, compared to those who overcharge paying clients to cover the deficit of those who don’t pay in full.
Another approach is to start with what you believe is a reasonable annual income, given your skill level and area of practice, and estimate your costs and workload to set the hourly rate accordingly. If you expect to net $150,000 after expenses (but before taxes) and your office expenses are $75,000, you’ll need to bring in $225,000. If you figure you can reasonably bill 20 hours per week for 50 weeks per year, $225 per hour will meet your goal. If you are hoping to clear closer to $250,000 per year, you’ll need to either up your billable hours per week or increase the hourly rate—or both.
The third angle focuses on the benefit to the client. This is a rather amorphous concept: What’s a will worth given that most folks will outlive the relevance of the will you initially draft? Clients inevitably have wills revised. Effectively counseling a client through a nasty divorce clearly will be financially beneficial to you, but you wouldn’t expect to be paid a percentage of the community property estate! The value of your legal work is greatly affected by the wealth of the client. My high-asset clients are quite comfortable paying $5,000 for an enforceable premarital agreement, but those facing mounting credit card debt are going to worry about every 15 minutes of a billable hour.
I’ve never signed on to the notion that charging more sends a message of higher quality to clients. Rather, I worry about the resentment they often feel, sensing that you are unfairly profiting off their travails. I’ve probably collected somewhere north of $5 million in fees during my 27 years of private practice, and my total unpaid fees is well below $50,000, total. My hunch is that charging a fair hourly rate—even perhaps slightly below “market”—is part of the reason my rate of unpaid bills is below 1 percent. Clients know I’m not taking advantage of their situation, and they appreciate that.
I also am very slow to raise rates on existing clients—usually extending the prior rate for a year or so. It’s a simple act of courtesy, and again, they appreciate it. I let them know that I’ve raised rates for new clients, and if the matter isn’t resolved after some length of time I will raise their rates, but most matters are wrapped up within the year. Talk with your colleagues about how they handle these topics. Each sub-field has its own culture and standards of practice, and you’ll want to align your billing practices with others working on similar matters. For example, simple wills or premarital agreements often are done on a flat fee basis, unlike divorce proceedings.
You’ll also need to decide how much to charge for paralegal services, and which items are simply included in the hourly rate. It always seemed unwise for lawyers to charge for copying costs when they are billing out at $500 per hour—isn’t that sufficiently high to include a few dollars in copying costs? And, especially if you are a solo, you will also have to decide when your time itself should not be billable. I never charge for any time spent discussing fee issues with clients, and I usually don’t charge for my calls to colleagues asking for background information on a topic I’m not quite up to speed on.
Frederick Hertz, an attorney and mediator based in Oakland, has managed his solo practice for more than 25 years.
"The Art of Getting Paid" is a one-year series of blog posts that provides a comprehensive training to lawyers on how to get paid.
We welcome your questions and comments – and of course, your suggestions on how to master this insufficiently respected aspect of practicing law.