Pricing Legal Services - Time for Project-Based Pricing?
When was the last time you re-evaluated your firm’s pricing structure? More and more clients are looking for options when it comes to how they pay for legal services. Smart firms are taking note and are taking another look at how they bill clients. Naturally, pricing legal services can be a sensitive subject. It’s how you make your money and earn your living. Not only that, timesheets have become a kind of a security blanket for many law firms. Old habits die hard.
But it can also be hard to stand out from the crowd. Whether you are a solo practitioner or a large multi-attorney firm, changing your law firm’s pricing structure might be just the thing to distinguish yourself. How might it open the door to more clients and new opportunities? Change is never easy, but this change might be worth the discomfort.
The Downsides of Timesheets
Time tracking has been central to pricing legal services for as long as anyone can remember. Hour after hour, day after day, year after year, lawyers document their work through timesheets. It’s how things have always been done in the industry. It’s familiar, but is it the best model to use for charging clients?
All customers, no matter the industry, want to know they are getting a good value for their money. With timesheet pricing, this can be tricky. From day one of your relationship with a client, building trust is key. If you are documenting your time, and your client is reviewing the summarized time entries with each bill, how often are they questioning, “Did it really take him 30 minutes to make that call?” or “Why did she spend 5 hours writing that brief?” Clients’ nitpicking invoices or dreading the final bill often erodes attorney-client relationships.
Billing based on timesheets pulls clients into the weeds of how you’re spending your time, rather than keeping them focused on the overall value you’re providing.
The Upsides of Project-Based Pricing
Strengthening trust with your client from the start is essential. Pricing your legal services on flat, project-based rates rather than on hours can go a long way toward establishing this trust. Knowing the total cost up front can even make some clients willing to pay more. You provide value by eliminating the risk of the unknown.
When you give your clients the option to agree to the total project cost before engaging your services, there are far fewer questions about how you spent your time and if the time spent was worth it.
This can eliminate some of your risk and your biggest headaches as an attorney. Think about not having to justify your time, not arguing over the bill, not chasing after clients for payment, or not getting bad reviews from angry clients about a bill that was higher than they expected.
Tracking Time Still Has Its Place
So, if there is growing interest in a more modern approach to pricing legal services, why do most attorneys stick with the same old pricing structure?
In addition to the security blanket factor, timesheets are how many firms evaluate employees’ work. Keeping track of time gives insight into who is completing work effectively and efficiently. Internally, time tracking may remain necessary and important. It also provides important information about setting the flat fee you charge clients.
Create a Winning Pricing Model
You know all clients are different, with varying problems that require different amounts of effort and time, so you’ll need to set up your pricing model to reflect that.
It may be disconcerting to think about changing how you bill your clients. But if you are diligent about how you structure your law firm’s pricing, you should almost always come out better off than by charging hourly. Again, most clients will pay a premium rate knowing that the pricing is capped.
Here are 5 steps for setting up a project-based pricing model:
- Estimate how much time this case will take. Break down each step of the case and how long each task or event will likely take for you and any others working on the case to complete.
- Compare with similar cases from the past. Look at the hours you spent on past cases with similar clients, total and average those amounts.
- Determine any value-added costs and benefits. Ask questions such as, “Am I an expert in this field? How many years of experience do I have in this type of work? Would my time be worth more than the majority of my competition? What type of client am I working with and how much business do they bring to my firm?”
- Calculate a base fee using an hourly blended rate. Determine who will work on the case, how much, and what each of their time costs. Then figure out an hourly blended rate based on everyone that will touch the case. Multiply that amount by the total number of hours you estimate the project to take.
- Set the final fee based on the project scope. If the case is or has the potential to be particularly complicated, factor that into the fee. You may also want to clarify up front any additional fees that may be charged for scope creep.
Enjoy Better Relationships and a Competitive Edge
Although there are many factors to consider when changing your pricing structure from timesheets to project-based pricing, in the end, it can be a winning business strategy.
By letting clients know what to expect going in, you help them feel good about the decision they made to hire you, even if the outcome is not what they hoped. As you build trust and continue to improve client relationships, your business thrives, and more referrals come your way.
Since most law firms bill clients on an hourly basis, adopting a new pricing model can also give you a competitive edge. Offering a product that is both rare and appealing to most clients can help boost your firm’s profit margin.
