The practice of law is a profession, but it is also a business—one in which each lawyer is responsible for both client representation and personal and firm financial matters. Whether you are practicing in a group or solo environment, the business of law is every bit as important as the practice of law. Here are 12 tips for making sure the business of your practice runs smoothly.
1. Contemporary time keeping.
Contemporary time keeping equals more money, better records, and less chance of billing errors and malpractice. No matter how often we say this, too many lawyers do not keep contemporaneous time records while they are working, and so are guessing at the time they spent on particular matters—sometimes at the end of the day, too often at the end of the week or the month. Failure to keep contemporaneous time records is an invitation for disaster or worse.
2. Review your hourly rates once a year and determine whether the rates should change.
The cost of business goes up every year. Whether it’s rent, office expenses, staff salaries, filing fees or the like, it costs you more to practice law this year than it did last year. While you may not always be able to adjust hourly rates or fixed fees every year, you should review your hourly rates and fixed-fee structures annually to determine whether adjustments need to be made. If an adjustment does need to be made, consider whether the adjustment should simply be an incremental cost of living adjustment or something more. Many advocate that, if you’re going to adjust the rate or the fee charged, it should be by a meaningful number—you should decide. When you do make an adjustment, give clients plenty of warning and an explanation.
3. When changing your rates, offer clients the opportunity to “buy” hours in advance.
When we have made a decision to change our hourly rates, our firm has offered clients the option of “buying time” at the lower rate by paying money into our trust account for work to be billed at the lower rate until the funds are exhausted.
4. Consider whether you should charge for internal expenses and how.
Many law firms are dropping charging for internal expenses such as copies, faxes, postage, printing and the like. Such charges can be an annoyance to clients—some clients even require their outside law firms to not charge for those expenses, believing that such charges should be a part of the fees charged. If you are going to charge, should you simply charge a percentage of the fees as an administrative overhead charge? Unless the client required a detailed breakdown of the internal expenses, our firm charges 1½% of the monthly fees as an administrative charge and specifically cover this in our engagement letter.
5. Determine if the types of work you do justify multiple hourly rates.
Many lawyers practice in many areas of the law. Why should you have a single rate regardless of practice area? I do a lot of basic corporate work, securities work and high-net-worth estate planning in my practice. The hourly rate that I charge for basic corporate work is much less than the hourly rate I charge for securities work. Because of the nature of securities work and the higher malpractice insurance premiums that work requires, my securities rate is dramatically higher than my standard corporate rate. Consider whether the types of practice you have warrant different rates.
6. Your bill is the most important piece of paper sent to your client.
I could devote an entire book to this subject. Fees, pricing, and billing are important not only from an operational standpoint to a lawyer and the law firm, but in marketing legal services. A client’s receipt of your bill is often as welcome as a trip to the dentist—even if it is within or under budget. The following are some helpful tips to consider:
- Remember that your fee agreement is an important marketing tool in addition to an important legal document setting forth yours and the client’s responsibilities in the representation. Fees should be discussed at the beginning of the relationship and preferably at the beginning of each new matter.
- The charges to the client (whether based upon an hourly rate or a fixed fee) must project value to the client. Bills must project value to the client.
- Don’t let hourly time and rates alone determine the value of your services. Many clients are looking for alternatives to hourly rates and prefer a fixed or measurable fee structure that can be budgeted and controlled.
- Use the billing information you already have to establish profitable pricing and fees for repetitive services.
- Bill frequently. Large bills sent months or a year after a matter has begun or at the conclusion of the engagement are more difficult to pay and are often a client relations mess.
- Consider preparing the bills individually in your word processing system instead of sending your client what looks like a computer printout. Add a hand-written personal note on the bill.
- Your bill should be on the nicest bond paper. It is probably the most important piece of paper you give to the client from your standpoint. Some firms even hand deliver bills to their local clients. This also imparts the importance (and urgency) of the bill.
7. Data mine your files and bills to identify types of matters that are candidates for alternative billing methods.
In establishing systems to better practice law as well as developing alternative billing methods, the best resources you have are your old files and bills. If you have done five or 10 or 15 of the same type of matter in the last few years, you should be able to look at those matters and determine what the variables are, as well as what the billings were in order to establish a system for handling that type of matter as well as possible alternative fee arrangements.
More and more clients are insisting on attorneys providing alternative arrangements to the billable hour. While some matters may lend themselves better to fixed fees or success fees, if you have done enough of one particular type of legal matter, you should be able to establish parameters for determining whether some type of alternative arrangement might work for your clients.
8. Consider alternative fee arrangements for matters that are suitable or where clients have asked for it.
The benefits of alternative fee and pricing methods are many. They often result in closer relationships with the client, rewarding attorneys for expertise, efficiency, and good results and fewer fee disputes with clients. In examining alternative fee arrangements, lawyers must remember that value does not always relate to cost. Keeping time was originally a measure of cost—it only later became a means to bill fees (and so a “value” measure). We must remember what the client’s objectives are when billing for our services.
If you are proposing an alternative fee arrangement in lieu of an hourly rate fee, at least you don’t have to say “I don’t know how much it will cost because I don’t know how much time it will take.” But what do I say to the client about the proposed flat fee for the estate planning work she needs?
- Start with understanding your client’s needs and values. Good client communications is important in all matters handled for clients, but it is particularly important when using alternative fee arrangements and value billing, where satisfying the client’s perception of value is paramount. Communication with a client is critical to establish and define what the client wants. What are her objectives? Does she want a Mercedes or a Volkswagen? Preparation is 90% of successful communications of a proposed fee arrangement with a client.
- Early in the process of establishing an appropriate fee arrangement with a client, you should elicit what the client’s goals and expectations are in the matter. This may not be easy, as the client often has not formulated a goal or may have an objective that is not disclosed specifically to the lawyer. The definition of objectives may be an ongoing process. It also is critical to determine as early as possible, based upon the then-known facts, whether the client’s goals and expectations are reasonable and attainable.
- You also need to understand how the client is going to measure the value of the services you are providing. A real estate client may use square feet or the number of lots to break down the costs and hence the value of something for a project. A consumer may look strictly at the dollar cost. Understanding how the client measures and determines value is critical to establishing and communicating your proposed fee arrangement.
- Collaboration. When learning what your client wants and needs and how they measure value, your discussion should be collaborative rather than positional or confrontational. Often a lot of give and take between the attorney and client is needed to establish a plan and a fee arrangement. Keep it collaborative so your fee proposal is considered by the client with an open mind and not defensively.
- Communicating your fee proposal. Follow these steps when communicating your fee proposal to your client:
- Define the benefits of what services you are proposing.
- Define the scope of the representation: what is included and what is not included in the fee.
- Outline the timing of the work to be performed.
- Describe the payments terms.
- Describe the nature of the proposed fee—is it a percentage, fixed, adjusted hourly rate, etc.
- Finally, give them the dollar number.
The client is expecting the number and will listen carefully until they hear it—after that, they will typically focus only on whether that is higher, lower, outside their range, etc., and won’t hear much else. To help your client understand the full scope of what you are proposing, the amount should be last.
- When discussing the fee, you should define the value proposition in terms of the client’s desired outcomes and not the documents you are preparing or other work you are doing for them. For example, in suggesting a fee for an estate plan, discuss how the plan will meet the client’s needs to avoid family conflicts, keep the wealth and beneficiaries private through using the trust instead of a will that must be probated, providing for a special needs beneficiary, etc. Then, to meet those needs, we will prepare the following documents… (showing the effort you will go through to establish the plan).
- Giving a client choices: some projects can lend themselves to multiple types of fee proposals. Don’t think you have to offer just one to the client. In my private placement securities practice, I have been offering options to clients since 1982 with great success. Through experience with doing a number of private placements, I was able to develop an a fixed fee for preparing the placement memorandum and other documents needed, to be paid before the final documents were delivered to the client for printing, with a success fee paid if the offering closed. In every fee agreement I also offered to do the work at an hourly rate, with an estimated range of what it might cost. In 31 years of offering clients the choice, they all liked having the choice, although very few opted for the hourly rate. The certainty of the fee and how much was coming out of their own pocket if the deal didn’t sell (and the fact that it would all be paid out of the deal if it did sell) was enough to convince most clients that an alternative fee addressed their value concerns.
9. Look at substantive systems and use alternative fees.
Substantive systems are not only useful for freeing-up lawyer time, but the systems can also be used for marketing legal services and establishing fixed fees for repetitive work. Many areas of substantive law practice lend themselves to substantive systems. One example is our firm’s corporate practice. We represent many small and medium-sized businesses. These services include advice on structuring businesses, incorporation or organizational documentation, contract work, mergers, acquisitions, dissolutions and other general corporate work. The firm uses a number of substantive systems for doing this legal work.
We have a fixed-fee corporate representation service where we prepare annual minutes, act as a service agent, do a corporate compliance check and prepare special meeting minutes for clients for $200 per year. This is done with a substantive system using document assembly to generate the correspondence, reminders, minutes and questionnaires that in most instances requires only 10 to 15 minutes of a lawyer’s time per company per year. Some companies may require several hours of lawyer time, but the average, spread out over several hundred companies, still makes the work quite profitable—and yet a bargain for the clients. For an additional $300 per year, the business client has unlimited phone and e-mail consultations with our lawyers. The firm is able to use this pricing strategy to attract new clients in addition to generating significant additional work as a result of the audit questionnaires and phone consultations, which often uncover additional legal needs of the client. Being the service agent for the company also generates potential additional litigation matters, since the law firm has received the service of process as service agent. By using this substantive system to do corporate work, the firm is able to organize its corporate work better while marketing additional services.
Lawyers can (and should) identify areas of their individual practices and develop substantive systems using document assembly to leverage their delivery of legal services with technology.
10. Establish a retainer policy for all new clients, some (or all) existing clients and particularly for all litigation matters.
Getting your money in advance is always better than waiting to get paid after you send a bill. Having a retainer policy that requires clients to pay funds into your trust account to be billed against is just sound business practice. While some lawyers limit this to new clients prior to the establishment of an appropriate payment history, it is not a bad idea to consider having a retainer policy for every matter handled—whether from an existing or new client. This is particularly true in litigation matters, where it is much more difficult to withdraw from a case due to failure of clients to pay their bill.
11. Consider evergreen retainers.
Evergreen retainers are retainers than have to be replenished before the end of the next billing cycle. This is a way to stay ahead of the game. Estimate what will be required each month as a base retainer amount and don’t let the client fall behind. If you have a budget for the matter and know that certain phases will have larger fees, outline this in your engagement agreement and adjust the retainer requirements as the matter moves forward.
12. Written fee agreements for each engagement—even for existing clients.
While this is required by many states and for certain types of matters, it is a good idea to have an engagement agreement for each matter you are handling for every client. The engagement agreement not only establishes the fee that will be charged for the matter, but also should clearly defines what you have been retained to do and which have not been retained to do. Even if you have a longstanding relationship with the client, covering the specific engagement in writing is important.