Law Firm Pricing Options: Their Choice Means Less Pressure on You

October 29, 2015

Law moneyAfter years of hearing the “alternative billing” buzzword, small law firms typically bill their clients using time as the measurement and then apply an hourly rate.  And the pressure for law firms to find ways to make their lawyers time more profitable is enormous.  But at the same time, clients are expecting better value for the time they are paying for.

It seems like an insurmountable tide for small law firms—how do you squeeze more time out of attorneys—or, lower your hourly rates for clients—while you’re facing inflation, costs, salary increases at year-end, and more? You must be able to provide value that is important to solving your clients’ problems.  And billable time is often a major obstacle with law firm clients.

Here’s a possible solution that’s often overlooked in small firms, although it has long been a practice of larger firms:

S018742_B_300x250Offer a cost recovery pricing option.

Legal research costs are often misunderstood.  Example: the law firm may increase hourly billing rate due to expected legal research, without charging the client separately for legal research. Perhaps in the past, clients have implied that legal research is something they expect to be rolled into the hourly rate.  “It’s the law firm’s overhead,” people say. But is that really what’s best for the client?

Consider this alternative: Offer the client a slightly lower hourly billing rate—yes, lower—along with a separate pass-through charge for that month’s legal research.  The client’s total monthly bill may fluctuate, but it is a way to reduce all the pressure and attention given to the hourly rate.

Best yet, offer your client both options.

Would the client prefer a flat hourly rate of $225, or the option of $200/hr plus any legal research costs that come up? Given the choice, many clients may prefer the latter—and you end up with a similar amount in your pocket. Perhaps more.

As you strive to keep your firm profitable and differentiate yourself from your competitors, offering this billing option is an effective way to do just that. It’s also a different form of negotiation which softens up the discussion around “costs”. At the very least, your client will have fewer price complaints if they had a hand in choosing the billing structure. You may find that your price pressure lessens enough to turn your attention to where you want it to be—lawyering.