Law Practice Management-- How To Determine Your Charges
Identifying costs is a difficult law practice management task for most attorneys when thinking through their law company marketing strategies. In identifying costs for certain services, lawyers frequently fall short of what they should charge. Too many lawyers are afraid of even charging the competitive rate for their services when making their law firm marketing strategies.
Prior to you sit down and start believing through your law practice management rates method you require some distinctions around prices typically utilized in law firm marketing planning. Do understand a law practice management law firm marketing plan is not reliable if you only draw in people who want to pay the most affordable cost for a service. Instead, you want to focus your law practice management and law company marketing plans on attracting customers who will become long term assets to the company.
There are basically four methods of figuring out just how much you ought to be charging for your services. Lets move right into those now.
The Marketplace Technique In Law Practice Management Rates
This is one good method of identifying prices. Get your assistant to support you in this law practice management task and invest some time discovering what the series of rates remains in the community. Have her do a "mystery consumer" research study by calling around as if he/she were a potential customer and discover what your rivals state on the phone to her around pricing. She might require to call from her home phone to avoid caller ID. As another alternative you could have him/her call other assistants or paralegals at your competitors and provide to exchange your charges for their fees or you could do that with other legal representatives yourself in your market. If you actually want to get into it and have maximum information you can write possibly a couple of dozen competitors in your market and say you are doing a fee survey and if they would send you their fee list you will create a composite list that does not recognize those reacting and send them a copy of the results. To keep it simple for them consist of a stamped, self-addressed envelope with a list of the most typical services used in your practice area. Now you will see what people are charging for services comparable to those you provide. You must have the ability to come up with a range of rates. Utilize this variety to set costs for your own services. My suggestion in law company marketing preparation is to charge at the 75% level of the list. So you should be at or in the top 25% of the costs.
Remember that in general it is not a great law practice management strategy to contend on price. A lot of prospective customers will see pricing that is too low as a signal that there is something missing either from the service, the provider, or the company.
The Expense Approach in Law Practice Management Rates
This law practice management pricing approach is really uncomplicated actually. One just determines what the costs are to deliver services or products and adds on a sensible profit, someplace in between fifteen percent at the least and perhaps thirty three percent at the most. The most typical mistake in law practice management using this method is to neglect to consist of some type of your expense. Solo and little company attorneys tend to not include their own wage!
OK, let me say it once again. In law practice management frequently you count yourself out of the expenditures and you must include yourself in the expenses. Why? Frequently you are doing at least some of the technical work. Yes? Typically you are doing at least some of the management work. Yes? As the owner of the company you are due a sensible profit. Yes? If you are all three of these in one, you need to consider one income as due you for your time and know-how as the specialist and supervisor as well as a revenue of fifteen to thirty percent due you as the owner. Be sure to consist of a reasonable cost for your technical and supervisory work in the expenses part of this formula.
Fixed Rate Technique in Law Practice Management Prices
This is the technique used by numerous automobile mechanics (it is called "the flat rate book") and other provider. This approach is where you figure out a set rate for different tasks and charge that rate no matter what. He makes more if the mechanic spends less time than allocated for the job. He makes less if he invests more time than designated. But in the end, everything evens out (well, usually to the mechanics' favor if you ask me). Another example utilizing this technique is how managed healthcare has actually used this system with physicians and hospitals . Legal representatives can use this system if they desire.
The " Guideline of 3" in Law Practice Management Pricing
This " general rule" called the " guideline of three" used in law practice management is not what your Certified Public Accountant might inform you and it does not fail you either. Ask your CPA what they think of it and they will like it. To start we are going to be believing in thirds. For the first 3rd we will take the overall amount of salaries/bonuses (not benefits simply wages-- advantages go into the second 3rd following) for the revenue generators and/or timekeepers (this includes you if you are producing earnings) and call that our very first third. So accumulate the wages of the lawyers, paralegals, and legal secretaries who create revenue or are timekeepers and call this your very first 3rd (lets simply say that number was $100,000 to keep it easy). Whatever that number is take that number again and it is your second 3rd which we will call your "overhead" (thus that second third is $100,000 and don't forget you if you are doing some managing partner type tasks because that part of my sources your time goes here in overhead). Then take that very same number and we will call that your last 3rd, which we will call gross profits (another $100,000). What you need to do is take the overall amount (in this example $300,000) and now figure out how much you need to charge per billable hour, per fixed rate or the number of contingency fee cases won to be sure you struck the target we need to hit offered our very first 3rd number times 3 (in this example $300,000).
This method reveals you just how much per hour you require to charge. Because you understand how numerous billable hours each earnings generator can do each month, simply divide that into your overall of all thirds ($300,000) to see what you require to charge per billable hour to make your numbers come out correctly. As long as you hit your targets you will be guaranteed of a 15% to 30% net make money from your operations. If you are the owner of the practice you should have a fair earnings as well don't you agree? This technique is understood as the Rule of Three. If this technique is a bit too complicated do do not hesitate to contact me and I will assist you sort it out in a few minutes on the phone.
It is a great idea to think through all of these rates approaches in identifying your law practice management pricing technique prior to setting a rate and continuing with a law practice marketing plan to guarantee you are completely exploring all choices. Keep in mind the propensity for many lawyers is to price too low. Don't do that! In another article I will tell you how to speak to possible clients so you never ever have a issue getting the cost you should have.