How to Calculate a More Realistic Estimate of Likely Fees and Costs
There's more to likely fees than mere multiplication.
The one decision that has the biggest impact on your income is, of course, the setting of your hourly rate. There is no magic “right” answer here: as discussed earlier, it’s a balancing of a great variety of factors. Having set your rate, you might think that translating the estimated hours of time into the total likely fees is simply a matter of multiplication, and in some sense it is. But there’s also more to it.
Balance Hourly Rate vs. Work to Be Done
First, there is the balancing of your hourly rate with the different sorts of tasks to be done. Some tasks take a set amount of time, no matter how efficient or skillful you are. Settlement negotiations, for example, rarely go more quickly just because you’ve been doing this for decades. An experienced attorney, however, should be able to draft an agreement in much less time than a newbie.
Explain Delegation of Work
Depending on how your office is set up, there is also the question of what work is delegated to paralegals or to clerical staff—those who will have a lower hourly rate or perhaps not be charging at all for their time. This is something that you will need to explain to your clients, especially if they are sensitive to being pushed off to working with a “lower-echelon” employee. Confusion over who is going to do what task, and what the resulting impact on fees will be, is one of the biggest fee-related complaints against lawyers.
Discuss Timing of When the Fees are Incurred
Clients need to know when in the process the fees are going to be highest, so they can budget accordingly. This scheduling of fees will, in turn, be affected by how you are handling the retainer issue. It also affects how the big decisions get made by the client. If a series of depositions are going to be the biggest pre-trial expense of the case, you will want to push hardest for settlement before those fees are incurred. The same goes with trials: explain to your clients when the bulk of the preparation work needs to be done, so they realize the cost of not settling prior to that deadline.
Attach Value to the Substantive Options
Finally, it is always best to “monetize” the substantive options that are available to a client. I once had a client tell me he wanted to oppose his partner’s demand for access to their shared residence to obtain an appraisal. There was no legal basis for my client’s position, and so I told him that if he wanted to take that position, he needed to send me $10,000 in advance of my notifying the other attorney. The reason? That was how much his fees would likely increase if I took an unjustified position in the litigation. Not surprisingly, he backed down from his rigid posturing very quickly.
Predict and Explain the Likely Costs in Simple Terms
You also need to be able to predict the likely costs, and explain them in simple to understand terms. Remember, this is likely your client’s first experience with the legal system, and he or she may have trouble deciphering the legal fees from the additional costs.
I frequently handle fairly complex dissolution matters, and I sometimes need to consult with tax experts or child support experts. In some cases the experts will give me their time for free, but often I need to compensate them and that is a cost my client generally pays. I recently handled a divorce where the value of a very complex property was the key issue. It took me almost two hours of discussion with prospective appraisers to determine that the appraisal fee was going to be nearly $10,000—a price which my client couldn’t afford. But in order for her to make the decision, I needed to explain what I had done to obtain the estimate of the fee, and why we couldn’t find anyone to do the task for less.
Your goal is simple: to lay the groundwork so your client has a clear understanding of the likely fees and costs, so that no one is surprised when the invoice is delivered. Your client may be disappointed that the work took so long or the results were not quite what they hoped, but at least they will know why things cost as much as they did—and so will you.
Frederick Hertz, an attorney and mediator based in Oakland, has managed his 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.