Solos & Small Firms
Cutting To The Chase
Is it time to start chopping your rate?
Posted Apr 1, 2009 7:30 PM CDT
By Deborah L. Cohen
As the recessionary economy pressures the budgets of legal clients—from small companies seeking patents to individuals planning for retirement—the debate over cutting rates for legal services is surfacing on online forums, in chat rooms and at the watering holes where solo practitioners congregate.
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Should we do it? By what percent? Do we tell existing clients? Will it cheapen the perception of our work?
At least one long-standing expert on developing independent legal practices says the discussion should move away from hourly rates entirely and toward a model that gives clients greater comfort during uncertain economic times—fixed-cost billing.
“This economic environment presents a great opportunity for the solo lawyer who is willing to lose the rate mentality and adopt a price mentality,” says Beverly Hills, Calif., lawyer Jay Foonberg, author of the ABA-published book How to Start and Build a Law Practice. “Lawyers are among the last people still talking about hourly rates.”
Solo practitioners, who are not hamstrung by the often lengthy decision-making process at large partner-driven firms, should be nimble enough to move to a project-based fee structure with relative ease, he says.
“The firms are the ones that are married to rates,” Foonberg says. “One of the reasons people are solos is that they can do whatever they want.”
While it’s unlikely that solo attorneys will readily embrace what is still broadly perceived as an unconventional practice, some savvy attorneys are indeed using fixed-fee billing when the services provided can be estimated with some degree of certainty.
Mary Rowan, a solo in Richmond, Va., uses project-based billing for at least a third of her work. Rowan, who began practicing law last year, is particularly attuned to the budgetary constraints of the small to medium-sized companies she represents: She spent 20 years owning and running her own health-care management business.
“I think it lends a level of certainty that makes everybody more comfortable,” says Rowan of fixed-fee billing. “Everybody at the table is obviously acutely aware of dollars and cents.”
When variables in legal work force her to bill by the hour, Rowan is keeping her billable time at bay by deploying more of the lower-level work to her clients’ in-house staff. Rowan, who serves many growth companies, says her business has been on the upswing despite the down economy and she has no plans to drop her fees—either hourly or project-based—in 2009.
Indeed, lowering fees is generally viewed as a sure way to shoot your business in the foot, leading to problems ranging from a backlash from longtime clients still being charged at prior rates to a psychological perception that the level of service is somehow less than that provided by competitors charging premium fees.
E.J. Hong, a Palo Alto, Calif.-based estate planning and probate attorney, has raised her rates each year since leaving her career as a government attorney four years ago. For 2009, she’s effected a 10 percent fee increase.
She thinks lowering rates can cause far more problems than cures.
“It’s a bad idea—I can’t tell you all the long-term consequences,” says Hong.
In “Cutting to the Chase,” April, attorney Marcia “Marty” Rowan of Richmond, Va., was misidentified as Mary. The story also incorrectly states that she owned and ran a health-care management business. Rowan was president and CEO, but did not own the firm.
The ABA Journal regrets the errors.