Before you hike your rate, get to know your legal surroundings

In a recent column on attorney rates, I discussed the “when”: the best time and circumstance to set higher fees. In this column I’ll delve into the “what”; or, more to the point, “how much.”

When considering the amount by which to raise your rates, consider a couple of “tests,” as well as a number of plans and patterns to help you come up with your ideal number.

Conscionability test

Many jurisdictions have specific rules concerning fees. For example, in Rule 4-200, the California Rules of Professional Conduct provide that “[a] member shall not enter into an agreement for, charge or collect an … unconscionable fee.”
In defining unconscionability, the rule notes that all the facts and circumstances existing at the time are to be considered, including the following:

• the amount of the fee in proportion to the value of the services performed;

• the relative sophistication of the member and the client;

• the novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly;

• the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the member;

• the amount involved and the results obtained;

• the time limitations imposed by the client or by the circumstances;

• the nature and length of the professional relationship with the client;

• the experience, reputation and ability of the member or members performing the service;

• whether the fee is fixed or contingent;

• the time and labor required;

• the informed consent of the client to the fee.

Market test

Assuming that your current fee structure passes the conscionability test, modest fee increases will not cause a disciplinary problem. The only remaining issue is whether your fee increase will pass the market test.

Adding 3 to 5 percent to an hourly fee won’t turn off many clients. Remember, for the average client, there is little price sensitivity in choosing a lawyer. More than 60 percent of lawyer-client relationships result from referrals from trusted friends or from other factors, such as the perception of legal ability.

Large fee increases, however, will obviously cause more clients to pause. Again, assuming that your increase does not make the fee “unconscionable,” it must still pass the market test. If fees take a big jump, clients will leave. If the rule is that clients are generally willing to understand and accept modest fee increases, here is the corollary: Increase your fees more frequently, but in modest amounts.

Some other considerations you should take into account include the following:

• Your growth pattern

As you continue to grow, you can afford to be more selective about your clients. Raising fees is a way to let your clients self-select and determine who will get your services, rather than you picking whom to serve.

• Your success

With greater reward comes more room for risk. Success tends to build on itself. If you’re on a roll, the consequence of a poorly timed or not-quite-market-ready fee increase can be more easily overcome.

• Your strategic plan

How much you raise rates is partly a function of your plan and your desired position in the market. Do you want to be known as a low-priced volume leader, or a top-of-the-line, exclusive legal services provider?

• The nature of your practice and clientele

An economically sound client will be less burdened by increases and accept them more readily.

• The general economy

Remember to peek outside your legal shell. Things may be going one way for you, but the other way for the majority pf the working class. The more robust the economy, the less resistance.

• The competition

Your rates must be competitive with others in your geographic and practice areas. Each local market has its own characteristics. National trends are interesting, but they do not control your situation. Get to know the current market conditions in your region and the competitive pressures on legal fees.

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Edward Poll is the principal of LawBiz Management. He coaches lawyers and is the creator of “Life After Law,” a program that helps attorneys plan for profitable exits. He can be contacted at edpoll@lawbiz.com.