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Do You Want to be Cheap?
In several recent "Tips" we've discussed when to raise fees and how to stop discounting. There are plenty of strong opinions on both topics, and I recently had the opportunity to share my thoughts online with two lawyers whose views, although they were sincere, seemed contrary to "The Business of Law"® as I understand it.
A Texas lawyer sent an email to my blog—"I know your coaching is aimed at making a law practice more profitable," this lawyer wrote. "But we as lawyers have a fiduciary relationship to our client. It is part of our job to our client to keep the legal fees low ...to advise the client how to get the legal result desired, at the least possible cost." I congratulated him for his commitment to professional obligations—after all, as we've written before, a lawyer's fee is required to be "reasonable." However, this is not the same as saying that the lawyer's fee should be low.
Here we can get into the slippery slope of what the fee should be. If the fee should be low, then is $200 per hour, for example, too high? If so, is $150 per hour too high? I believe the lawyer's true obligation is not to be cheap, but to be fully committed to a collaborative client relationship that builds trust over the long term. That way, clients will see you as valuable, not expensive.
On a listserv recently, another lawyer requested comments about his proposed letter to his major clients. He wanted to "shout from the highest roof" to his clients that he plans to maintain his current fee structure, that he will NOT raise his fee rates. I responded that larger business clients don't buy legal services based solely, or even primarily, on hourly rates. They, like most others, buy based on perceived value—expectations that you can provide solutions to their challenges and personal rapport. Sending a letter like the one this lawyer proposed puts the focus on price, not service.
My suggestion was that the lawyer should call his clients and merely thank them for their loyalty and continued business. At the same time, a casual statement, such as, "oh by the way, my rates will remain the same in 2008," would reinforce the lawyer as a source of value, not cost. Such an approach builds client loyalty and lays the groundwork for a possible fee increase when the time is right.
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Personal Commentary
I recently attended the West Regional NCAA basketball game between UCLA and Texas A & M. I also watched the Stanford/Marquette game that preceded the West Regional UCLA game. Both games were about as rough and close as basketball games can be. Both games featured some of the best college athletes playing today. One lesson to be learned from these young athletes is that the game is not over until it's over. UCLA, for example, had mental toughness to stay in the game despite playing one of their worst games of the year. As a biased UCLA fan, I do not believe their performance was influenced that much by their opposition, notwithstanding Texas A & M's excellence.
For me, this is reminiscent of the discussion I had recently with a client who asked me to do a profitability analysis of her firm. She and her partner believed that the expenses of their small firm were too high. My review of the data indicated that there were areas where reductions or revised characterization would be relevant. For example, several capital expenditures could be removed from the expense side of the profit and loss statement and recast as assets; a management fee could be removed or recast as a draw by one of the partners because such a fee is inappropriate for a small firm. However, the real focus for this firm should be on increasing its revenue—that would have the most dramatic impact on its performance. Recasting the expenses would not change the cash flow of the firm, but would help generate the feeling that they are not in terrible shape and can succeed, as well as providing the mental toughness to continue seeking the appropriate client base to generate increased revenue.
Looking at the relevant data helps remove the fear element of failure and engenders confidence that small changes in one's own behavior can have a large impact on one's success.
Best wishes,
Ed Poll
lawbiz.com
800-837-5880
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What Readers Are Saying...
Secrets of The Business of Law® is the most insightful book I've read on this topic. It is written in an engaging, easy-to-digest style, and there was never a dull moment. I recommend it to anyone who runs a law firm and needs to turn a profit.
-CM, Massachusetts
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