Have You Been Overcharging or Undercharging Your Clients?
Here are a few pointers to help you avoid charging clients too much—or too little.
This may sound bizarre coming from the mouth of a lawyer, but I actually want my clients to like me. Mind you, this isn’t just some emotional residue from some early childhood anxieties, but rather, it’s a sound business strategy. I have made a fairly decent income working in my own practice for more than 25 years, and I haven’t spent a dollar on advertising. Satisfied clients are the best advertisements I could ever imagine. They can speak from experience, and thus their promotion of my work will always be persuasive. Anybody can buy an advertisement or Web banner, but the positive opinion of a former client is never for sale. And, while not every client has strong feelings about the quality of work their lawyer has done, they all have something to say about what they were charged.
There are three risks of overcharging your client:
- they might not pay you, or of equal concern, they might not pay you in full;
- it can infect the working relationship in ways that creates problems for everyone; and
- as mentioned above, it can earn you a bad reputation, which can haunt your marketing efforts for decades.
Overcharging can take the form of an excessive hourly rate or a heavy-handed billing practice. You should not charge more than about 10% or 20% more than what your competitors charge, and you should be cognizant of special factors that could impose even lower maximum rates. If you are new to a particular area of practice, your rate should reflect that reality even if you have been in practice for decades. If you are marketing your services to a particular client base, such as an insurance company or a nonprofit business, you may need to adjust your fees to meet their expectations. There’s a simple way to know if you are overcharging: if a high percentage of potential clients tell you they can’t afford you, then you have a problem. You want to create an open atmosphere of communication in the hiring process so you can hear this information. I offer a lower rate to certain clients such as friends, nonprofit organizations, or particularly deserving folks, but I engage in conversation about fees with my full-rate clients as well.
Over-billing is one of the most consistent complaints about lawyers. Be careful about monitoring your time, as clients know how long they’ve been on the phone with you or how long the meeting has taken. Because I bill in quarter-hour increments, I tell my clients that I round down or round up depending on the circumstances, but in a way that I believe is fair to them. If you use a smaller increment, be careful in how you keep track of your time each day, so clients trust the accuracy of your invoices. You also need to be mindful about what is actually billable. I currently don’t have a secretary, so I need to be fair in not billing my clients for what is essentially a clerical task. The same goes for background research on topics you should already know, or consulting with colleagues simply because you are a bit insecure about your strategy.
“My general rule is that I don’t increase rates on existing clients for the first year of my new rate.”
It may seem hard to believe, but undercharging a client poses risks as well. At the extreme end of the spectrum, a low fee can create doubt in a client’s mind as to your competence. Something just seems awry if a professional is charging less than half than everybody else in town. I am very transparent with clients when I reduce my rates, so they understand why I am doing so. This is also an issue with regard to long-term clients, if you are increasing your rates over time. My general rule is that I don’t increase rates on existing clients for the first year of my new rate. Most clients aren’t still in my hopper after a year, but if they are, I always explain to them that I have deferred increasing their rate for a year.
The other long-term negative consequence is that of your own unhappiness. I regularly meet with dissatisfied lawyers, providing a blend of practical coaching and personal counseling. Many of these folks report that they are working long hours, helping a great many satisfied clients, and barely making ends meet. What usually emerges is that they are under-charging, either by setting their hourly rate too low or writing off too many hours because they are embarrassed at the amount of time something takes. So long as one’s financial goals are reasonable, it shouldn’t be that hard to make a decent living as a lawyer these days. So, don’t burn out prematurely, simply because you don’t feel you are being adequately compensated for the complicated tasks you take on.
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.