Charging by the Slice
Posted Nov 01, 2007 08:55 pm CDT
Blame it on Abraham Lincoln. The 16th president is often credited with the adage “A lawyer’s time and advice are his stock-in-trade.” True enough. But the question is still how to charge a client for that.
For as long as there have been lawyers, it seems, legal services have been charged by the hour.
But new technology means lawyers can be more efficient, and lawyers must serve more clients to keep billable hours up. And to many lawyers, doing the job more quickly doesn’t mean the work is worth less.
Enter value billing, a relatively new idea that’s making its way to many solos and small-firm practitioners. Lawyers break a case into its component parts, charging a specific fee for each segment. The client can stop after any segment if she doesn’t have the next payment or doesn’t think it’s worth continuing. It also prevents the lawyer from doing work before getting paid.
For example, says Ted Waggoner of Rochester, Ind., he might tell a client that for a certain fee he will make calls and write letters to settle a case. If the case doesn’t settle, he will conduct discovery for another set fee. If the case still doesn’t settle after discovery and the client wishes to continue and file the lawsuit, a third specific fee will be due.
“People don’t often understand the value of what you do,” Waggoner says. “Now I spend more time talking to potential clients to get a feel for what the case is worth to them.”
Harsharn Makkar knows all about clients who demand to know the price up front. Makkar, a solo in Duluth, Ga., serves a clientele made up primarily of East Indians. She says many of her clients wouldn’t think of buying anything without comparing prices.
Makkar often finds herself quoting lowball prices to get business for her fledgling firm. Sometimes she can make a sizable profit; other times she might barely break even. It depends, she says, on the client and how much she can charge, as well as the good will she is hoping to engender.
But with each new case she learns about an area of law that will make her more efficient the next time she handles a similar issue.
“Eventually, when I know something well, I can do it more quickly. And then my profit margin is better,” says Makkar. Clients know they’re not paying her to learn.
Waggoner says his clients like knowing exactly what something is going to cost before the work begins. That way they can decide whether to hire him or, if they feel they can get a satisfactory result less expensively, move on.
“It’s like if I go out looking at cars. I can look at the price of a Honda and the price of a Lexus. If I decide the Honda suits my needs, I’ll buy the Honda. If cost is less important to me than getting the things I want in a car, then I’ll buy the Lexus,” Waggoner says.
And clients are less likely to argue about their bill if it’s what they expected, he notes. As for clients who may wish they hadn’t agreed to pay so much when the case settles early, Waggoner has an answer for them.
“Would you rather spend a year of your life watching me sweat for every penny of that fee to get the result? Or would you rather have your result now, pay the agreed price and move on?”
And, Waggoner notes, for every case that settles after one letter, there’s another that is fought to the bitter end. Those clients, too, can rest easier knowing that their legal fees won’t mount.
“I tell my clients that I am not selling paper. I am selling my knowledge, expertise and experience.”