One of the biggest reasons most lawyers struggle with the business end of law practice is because of the old, outdated, clients hate it and so do lawyers, practice of billing time on an hourly basis, often in six minute increments.
When I was working for BigLaw (at Munger, Tolles & Olson), there was really no choice but to bill time. The managing partners had no way to track effectiveness of associates without it. And, frankly, it’s one of the reasons I left to start my own law practice.
As a corporate tax and estate planning associate, billing time just didn’t seem to work well. Clients weren’t communicating with us as often as they should because they knew they’d get a bill in the mail weeks later for the $67.50 email they sent and I would more often than not choose not to bill time for work performed because, honestly, I felt bad doing it when I was answering a quick question for a nonprofit or personal client.
When I hung my own shingle and started my law practice, I knew that I’d have to make the switch from hourly billing to something else, but I wasn’t sure how to do it or what the something else would be.
I found myself losing money because I wasn’t billing for the quick calls, the requests for referrals to other lawyers and the myriad of other little things that would come up that felt like billing would take more time and cost more than just writing off the time.
I was losing money, fast. And I could see it wasn’t sustainable.
So I made the shift to billing for my estate and business planning services on a flat fee basis. I looked at what other lawyers were doing based on their listserve posts and discussions and created my own flat fees.
But there was a problem … client’s weren’t signing up as often as I felt they should and I knew it all had to do with the fees.
I wasn’t explaining them properly. I almost considered switching back to the hourly model, which all clients could understand and, it seemed, almost expected.
Then, I engaged a client for a $5,500 trust package. Success! Except then it wasn’t …
Within 2 weeks they had called me back to cancel the planning. They had found another lawyer who would provide EXACTLY what I was providing for just $2,500. And while they said they would be happy to pay me $1,000 more for the additional service and relationship I provided, they couldn’t justify more than double.
I was devastated. I knew I was offering more than the lawyer who was charging just $2,500 for EXACTLY the same thing, but I didn’t know how to articulate that more.
So I let them out of our agreement. As I did so, I made a request. I said to the client, “okay, I understand what you are saying and I have a request. Would you please get back in touch with me after the planning with this other lawyer and share your experience with me?” He said yes and, frankly, I never expected to hear from him again.
But hear from him I did. And it was better than I could have ever hoped for. In fact, what he shared with me became the basis for a complete redesign of the way I charged for my legal services, explained them to clients and was most likely the #1 single thing most responsible for my being able to go on to build a million dollar a year plus law practice.
This client came back to me with a point by point analysis of my process and the other lawyer’s process and what I was able to see is that the plan the lawyer was delivering for $2,500 was not EXACTLY like the one I had quoted a $5,500 fee for.
In fact, for the plan that lawyer was delivering to his clients, I would have charged only $3,500, which was the exact amount the clients said they would have paid for my enhanced service and relationship offering.
In fact, I was including two additional items in my $5,500 plan that I could now let my clients choose whether to include or not and they could, in effect, choose their own fee!
Today, those $1,000 questions are the foundation of the fee quoting system I developed and have now taught to hundreds of lawyers who are using these questions to engage more clients and receive higher fees by clients who are happy to pay them.
While I cannot explain the $1,000 questions in full here (they are part of a course I created called the Client Engagement System), I can describe the starting place for making the shift from hourly services to packages your clients are happy to pay for.
First, identify three levels of outcomes or value you provide to your clients.
For example, in the estate planning practice, our Personal Family Lawyer members have a basic plan for families who don’t have assets that would go through probate, a mid-level plan for families with assets that would go through probate and a high level plan for families who want their lawyer to handle not only all the planning and documentation, but the transfer of their assets as well.
In the business planning practice, our Family Business Lawyers may have three packages focused on clients just starting up their business and need all the deliverables associated with a new startup, a package that is for the business owner who has been at it for some time and needs ongoing strategic support and finally a high-end package for the business owner who is ready to consider selling the business and wants to prep it for sale.
In a divorce practice, you may use stages, such as pre-divorce consultation and planning, filing of the complaint and all pre-litigation matters, mediation or collaboration of marital settlement agreement and then a whole separate set of packages if litigation is necessary.
Second, assign a value to these outcomes.
The value is not about the hours you will put into the outcome, but instead about the value of the outcome to the client.
For example, a startup client in the business side of a law practice may require far more hours than the strategic support for the ongoing business owner needs, but the start up client has less available assets and your package would be priced less with the intention that the start up work is just the beginning of a life-long relationship with the client that will net your law practice quite a lot of income over time — if you can support the business to get off the ground.
A client family with less assets at stake in the event of a death or disability would naturally want to pay less than a family who has assets that would go through probate or even be subject to estate tax.
Price your packages accordingly.
Third, create a fee schedule that lays these packages out clearly
I invested $10,000 to work with a consultant to design my packages and fee quoting system. Then I invested another $2,500 to visually represent the packages in a fee schedule.
That $12,500 was the best investment I ever made in my law practice because it took me from struggling to engage clients and command fees I knew I deserved to engaging just about every single client who came into my office and at higher fees than I ever had before.
The best part is my clients were happy to pay the fees because they were choosing the fee themselves. And, thanks to the $1,000 questions, in many cases, they were choosing to pay me $1,000-$2,000 more than they would have if I had just quoted a fee without the questions.
Are you ready to make this kind of shift in your practice?