Having been in the legal business for 25+ years, I have long marveled at the machinations of lawyers over their billing rates. I recall being a bit shocked back in the 80’s when I first saw lawyers having fits when “The Firm” raised their rates – yet again.
Why was I shocked? Only the week before these same lawyers had been bragging about how awesome they were in court and about the high-value results they delivered to clients. So which is it? As a lawyer are you highly valuable (justifying a higher rate) or are you low value? At the time I remember thinking, “Pick one option and go with it."
Fast-forward to the present – and just like all things in the legal market – we are still having the same conversations. In talking with a colleague from another firm, the rate-increase topic came up. He was lamenting his upcoming, potential rate increase. He noted how poorly he predicted clients will react to ANY rate increase, especially in this market.
So I asked him my old question. He didn’t like it.
After he calmed down I shared some thoughts with him.
Rate increases are a relationship building opportunity, but only if you treat them that way.
A better question for my colleague: “How many clients just pay your rate without asking what it is?” I’m guessing not many. What this means is you should already be having these conversations with your clients. Rate increases are an opportunity to get in front of clients and engage in conversations about pricing options for the coming year. Isn’t this what clients are asking you to do?
Rates are a tool, but should not be treated as a hammer.
Why treat your published rate like it’s chiseled in stone? Rates are merely the starting point for rate and fee conversations. Come to grips with the notion that price increases are a fact of life in business. However, the days of sending letters to clients announcing your annual rate increase are over. What’s important now is how increases are communicated to clients. (In-person is the right answer – btw.)
Rates matter, but fees matter more.
Have conversations with clients about pricing, versus rates. At the end of the year, or end of a case, what really matters to a client is the fee. How much did the case or deal cost them? Your rate could be $10 per hour, but if you took 100’s of hours to complete a task, the fee is going to be high. A challenge here is that clients tend to compare pricing on a rate level, instead of a fee level. Use the price conversation to help the client shift their thinking towards fees. In the long-run this will greatly benefit them and solidify your relationship with them.
It’s Not Easy
I know … having pricing conversations can be challenging, especially in the current environment. The new question I should start asking lawyers: “Did you pick law because you thought it would be easy?” I’ve yet to meet a lawyer not up for a challenge. They just need to add pricing conversations to their list of worthy challenges.
It’s either that, or pick an easier profession …