The topic of fees, and what to charge a client generally, is typically very stressful for any attorney starting a law practice, whether experienced or not. I previously talked about marketing yourself as the “wise man on the top of the mountain”, and this advice holds true when you are deciding how to set fees for your law practice.
Now, before I get into the topic of fee setting itself, it is important for you to understand what you are providing for those fees that you charge. I don’t advocate charging a fee and failing to deliver a valuable service to your client. You must constantly over-deliver to your clients so that you are worth the fees they are paying you.
All of the following are, essentially, assumed when discussing how much to charge your clients:
- You are providing a valuable service to your clients.
- You treat them well and with respect.
- You keep them informed about their case with periodic progress reports and phone calls.
- You make yourself available to them for pre-scheduled phone calls.
- You over-deliver on your promises.
In other words – you deliver top-notch customer service to your clients. This is a given. Now, back to my discussions of how to decide what to charge…
5 Mistakes lawyers make when setting fees
Here are a 5 mistakes I see lawyers that are just starting a law firm make when they are deciding to set their fees:
- Talking to all the other lawyers in their practice area about what fees they charge, and then setting themselves at a comparable rate, or worse, a lower rate.
- Lacking the confidence that they are worth the fee they are charging.
- Believing falsely that a client will only hire you based on the fee you charge.
- Failing to have goals for how much money you want your practice to generate in yearly revenue.
- Failing to decide how many hours per week you want to work.
I could probably write a blog post about each of these mistakes, and most likely will. But for now, you just need to be aware of these mistakes and try to avoid them as you decide one what fee to charge based on the two factors I’ve listed and explained below.
Two factors to consider when setting fees
In my opinion, there are really only two factors that you should consider when deciding what fee to charge. The first is how much money do you want to make in a given year, and the second is how much money is your time worth. These almost go hand in hand.
Napoleon Hill said it best when he declared “Know what you want and you’ll generally get it.”
The same is true when setting your fees. You must decide how much money you want to make in a given year, and use that number to determine what your time is worth. Here is an exercise for you to work through this.
First, take out a sheet of paper. It’s ok, I’ll wait.
At the top of that sheet of paper, write down “Revenue Goals for the year”. Now, underneath that heading, write down how much money that you will contribute to your firm’s revenue in the coming year. That number might be $150,000 or it might be $250,000. Write it down.
We know there are 365 days in a year. But 104 of those days are weekends. You may want, conservatively, 4 weeks of vacation which takes off another 20 days. Take off a few more for holidays and sick time, and we have 220 workdays in a year. Assuming that you will be working 8 hours a day during those days, you will be able to “bill” 1,760 hours per year. However, we know that you will never be able to bill for all of that time. Since you are running your own firm, you have marketing to do, administrative tasks, etc. So lets say that you are able to bill 4 hours per day.
What does your hourly rate need to be?
Take the number you started with and divide it by 1,760 to determine your “base hourly rate”. Now take that number and multiply it by 2 to account for all your “non-billable” time.
If you started at $200,000 per year as your target revenue number, your base hourly rate should have been $113.64 per hour. Multiplied by 2, your billable rate should be $227.27 per hour… at a minimum. This assumes, of course, that you are able to bill 4 hours per day, every day that you work. If your number is going to be less than that, then you will need to adjust your number accordingly.
If you find this helpful, please let me know! Post a comment below and tell me about your experience setting fees.