Keep Up as Clients Push for Changes to Legal Fees
Despite its long—even ancient—traditions, the legal sector is under pressure to modernize if it wants to keep up with shifts in technology, trends and customer needs. As part of this evolution, your firm may need to break its pricing methods out of the usual box to stay competitive and flexible in the new reality.
Doing so can enrich your legal firm in a multitude of ways, literally and figuratively. Not only can it improve the collection of legal fees, but it'll also foster a nimbler business that may appeal to entirely new sectors of clients.
Clients asking for change in legal fee structure
According to legal experts, purchasers of legal services have evolving expectations of their providers, and legal fees are one area in particular that they'd like to change. Many are hoping to switch to fixed or capped fees, as well as value-based pricing, versus the traditional billable hour, where costs can increase rapidly. As part of this, legal clients want greater transparency for billing.
Common law firm pricing models
Because of this shift in client mindset, it's worth reviewing common law firm pricing models for legal fees.
- Hourly: The billable hour is the standard for legal services but one that your clients may be less willing to tolerate going forward, especially given the growing preference for pricing predictability and transparency.
- Flat fees: With a flat fee, you quote clients a set price for a set number of legal services. Although this will make the clients happy, it means you need to think carefully about how to set the fixed fee and make sure it accurately reflects your expenses and value delivered.
- Retainer: Under a retainer, your client pays a set amount upfront, which you then invoice against as you deliver legal services.
- Subscription: A growing trend, subscription pricing means you charge clients a monthly fee for a set amount of work, whether they need it or not. This works out well on both ends as it delivers predictable pricing for clients and improved cash flow for your firm.
Factors for setting legal fees
Whichever pricing models you use, you need to properly compensate your firm without driving clients to other lawyers. There are three common strategies for doing so.
- Cost-first: Tally up the expenses of the legal service, then add in your profit margin to set your fee.
- Value-first: Consider how much value your clients receive from your services and try to gauge how much they would pay for that, then set your rates this way.
- Competition: Check the rates of your competitors for the same services and base your fees on that.
Other factors you could consider as part of your calculation for legal fees include:
- Your years of experience
- Whether you have a legal specialty
- The complexity of the work
- The type of client
- Discounts for things like new clients and large jobs
How to improve fee collection methods
Collecting fees is as important as setting them. How this is done is also changing. In particular, there's a growing trend for law firms to accept credit cards. Not only is this convenient for clients, but it can also accelerate your collection process. In fact, according to a Clio report 57% of firms accepting credit cards get paid the same day and 85% get paid within a week.
Legal tech services like LawPay and LexCharge can set you up to accept credit cards. They can also create other digital payment methods, like mobile pay, echeck for automated clearing house—or ACH transfers—and invoices by email. These payments would allow clients to also pay your firm automatically month after month, which is useful for a subscription pricing model.
Another way to improve fee collection is by automating your accounts receivables, using software designed for legal professionals like TimeSolv or Clio. They can track your unpaid client invoices and send out reminders, so you can focus on your billable legal work instead. Talk with your banker to discuss their available automated fee collection processes and digital banking services.
Technology leads the way
Clearly, technology is playing a key role in changes to the legal industry. Given the shifting landscape and new tech trends for the legal industry, firms that react may be able to attract clients rethinking their existing legal relationships and seeking to upgrade. As the legal sector and technology evolve, it could pay off to rethink your pricing and fee collection methods.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.