Dealing with Difficult Clients

Difficult conversationsIf you have been in practice for any length of time, sooner or later you’re going to get stuck with a difficult client, or at least a difficult client conversation. Uncomfortable client conversations can arise for multiple reasons. Sometimes those reasons have more to do with the client than with the lawyer, but every attorney-client relationship contains two players, so you need to be aware of the ways in which you might be contributing to the problem and the ways you can contribute to a solution.

Take on the right clients

The best way to deal with truly difficult clients is by not taking them on in the first place. That requires that you be able to identify potentially bad clients early – preferably before a retainer is signed so that you can avoid them entirely. Make a list of bad client warning signs to help you identify potentially difficult clients. (See this blog post for tips on identifying bad clients).

Pre-screen and pre-qualify clients by:

  • Asking the right questions
  • Educating clients about the legal process in general and your services in particular
  • Evaluating whether your firm is the right fit for the potential client.

Pay attention to what your gut is telling you when you first meet with clients – if your gut tells you the client is not right for you, don’t agree to the representation.

If you’ve already hired a client that isn’t the right fit, consider firing them.

Communicate value

To effectively attract and retain good clients, you must communicate the value of the services you offer. Know what is important your potential clients and be able to differentiate yourself and your service from the others in your practice area – not just when you’re trying to attract new clients, but throughout the engagement.

Relate your services to the benefits to the client. Everything you do should be based upon the clients’ perspective – what’s in it for the client? How does each of the activities you undertake advance the client’s goals or contribute to their desired outcome?

Manage clients’ expectations

It is crucial that you discover, and help shape, the client’s expectations at the outset of the engagement, and that you continue to manage them throughout the engagement. In her article, “How to Handle Difficult Clients,” in the July/August issue of Law Practice Magazine, Justice Carole Curtis notes that clients have expectations not just about results, but also about service, time and costs. If the client’s perception of ‘service’ is something more or different than what you provide, the client will always be dissatisfied, regardless of how good your work is. It’s your job to manage expectations in each of these areas.

For more tips on managing clients’ expectations, see my posts Tips for Managing Client Expectations on the Legal Ease Blog or Managing Client’s Expectations on Lawyerist.

Know your boundaries and set limits

Often confrontations arise when the unexpected occurs. You can reduce many common difficult client situations by being prepared and setting boundaries at the outset of the engagement. Clients who can’t abide by your processes or boundaries will often self-identify themselves, offering you the opportunity to explore the situation before a confrontation occurs or the chance to decline the representation. There’s no reason to tolerate an abusive client!

Provide excellent service

Keep the client updated about what’s happening with the case. Don’t make clients ask you for a status; be proactive and provide regular updates, even when nothing is happening.

If you need to make a staffing change on the file, give the client a heads-up; don’t wait until the client receives a bill with a new attorney’s name on it or receives a phone call from a new attorney in your office they don’t know. Always present your best work; even if it’s just a draft, it should be free of spelling and grammatical errors, typos and other problems. Always accompany copies of documents or decisions in the client’s matter with a plain language explanation of what the document is and how it affects the client’s case.

Recognize that the client may not always agree with the course of action you think is best. Explain how the different options might advance the client’s stated goals and give your insight about consequences and potential pitfalls, but remember that ultimately, it’s the client’s job to choose the course of action. Document these conversations or follow up in writing.

Under-promise and over-deliver, keeping the four areas of client expectation listed above in mind.

Bill appropriately

Often, client problems or complaints arise out of disputes about or confusion over fees. Don’t nickel and dime your clients by charging them for items that really constitute part of your overhead and should already be factored in to your fees. Make sure your fees are fair and reasonable. If there is a change in your budget, big expenditures that need to be made, or if unexpected costs arise, advise the client as soon as you become aware of the change; don’t wait until the funds have already been expended or simply add it to your bill without discussing it with the client first.

Obtain client feedback

A client that doesn’t complain isn’t necessarily a happy client. And even happy clients may have additional needs that you could address. Obtain feedback throughout the engagement and upon its conclusion and act on that feedback when you receive it.

Handling Difficult Client Conversations

Even if you have done all of the above, you may still won’t be able to avoid difficult conversations entirely. Even generally good or cooperative clients can become difficult at times, especially when you have to tell them something they don’t want to hear, or when they have a complaint.

Sometimes conflict arises because clients don’t feel understood. Even business clients have an emotional investment in their legal matter, and many legal matters have high stakes, affecting clients’ finances, livelihoods, businesses, or their very lives. If you can guide the conversation in a way that makes clients feel understood, the conversation will run much more smoothly.

When you find yourself in a situation that requires a difficult conversation with clients, keep these tips in mind:

Mirror the client’s concerns. Let the client tell you what the issue is, and then reflect it back to the client. This way, the client knows they’re being heard, and you ensure that you understand their issue.

Focus on the client. The key to resolution is concentrating on the client’s feelings and the client’s desired outcome, rather than focusing on yourself, the work you have already done, or additional work that may be required. For example, if a client asks for something in a rush, respond by first acknowledging the client’s sense of urgency and how it affects their goals – not by telling them how much work you have to do or why what they’re asking is impossible.

Lay the groundwork for bad news – and go slowly. Resist the urge to just ‘get it over with’ by blurting out the bad news all at once. When you know the client isn’t going to be happy about what you have to tell them, start out by acknowledging the client’s desired outcome or goals, introduce what you are going to discuss, or explain that there are a number of different strategies that can be employed to move forward with their matter. Be sure to give the client reasons for those options and for what occurred. After you’ve delivered the bad news, let the client know that you empathize with their position.

Acknowledge the client’s feelings. Acknowledging a client’s feelings by saying something like, “I can tell that you’re upset about this” will begin to defuse the situation. Don’t let yourself get emotional or allow the client to push your buttons and don’t argue with clients about their feelings, whether you believe they are justified or not; you won’t change their mind and you are likely to make the situation worse.

Let clients know that they’re not alone. If this particular problem is a common one, or many clients seem to be frustrated by the same thing (for example the Court’s delay in making a decision, or opposing counsel’s refusal to provide documents), let the client know that not only are their feelings valid, but that they have been expressed by others in the past. If you are similarly frustrated, let the client know; it can be a way of getting you and your client back on the same side.

Work toward a resolution based on where you are now. Once the client is calmer and you’ve acknowledged them, you can begin to gather information that can help you to reach a solution to the underlying problem. Offer the client options for resolution, even if you can’t meet their specific demand.

Focus on the positive. Instead of saying no or telling a client what you can’t do and why, tell them what you can do. Explain the options in terms of the client’s goals (i.e. because I know that you don’t want to drag this litigation out…” or “Since you want to keep costs down…”

Don’t retreat or get defensive – it only escalates the confrontation.

Get help. While these suggestions may seem simple, they’re not always easy to implement. Working with a coach or getting some client service training can help you develop the skills necessary to handle difficult client situations.

Need help identifying bad clients or weeding them out? Want some training on dealing with difficult clients? Contact me for a consultation.

A version of portions of this article originally appeared on JD Supra.  

 

Value Billing: Too Nebulous to be Effective?

This is the second in a series of articles about fees, prompted by two posts authored by Carolyn Elefant on two different blogs. The post I want to discuss today was a post from the law.com legal blog network entitled, How Can Lawyers See The Value in Value Billing If No One Will Tell Us What It Is?

Elefant says she can understand contingency fee billing, because it aligns the interests of lawyers and their clients, but she doesn’t understand ‘value billing.’  She laments the fact that although there seems to be a lot of talk about value billing, no one has been able to provide her with a tangible example of value billing.
Part of the problem may be that the term ‘value billing’ is being used by lots of people to describe lots of different billing arrangements. Some seem to be using the term to describe any billing arrangement that isn’t hourly billing.

As I understand it, value billing (as discussed by proponents like Ron Baker) is a system of determining the fee for a particular matter based not on the inputs involved (i.e. time, expenses, etc.), but rather based upon the outcome and/or the type of service the client prefers, and the significance of that outcome to the client. Sometimes the outcome or value isn’t a financial result, but is some other intangible result, such as peace of mind, etc. (or a combination of factors). The fee is then set based upon what the client wants or thinks is significant.

Elefant’s frustration with the lack of concrete examples of value billing is understandable. Unlike an hourly billing system, which charges clients a particular rate across the board, value billing by its very nature, makes explanation in a vacuum impossible. That’s because the fee will be different for every client and every matter.It is only after ascertaining the client’s desires and priorities that the fee can be determined. And the lawyer’s job in determining that fee will not necessarily be an easy one. Then again, neither is setting an hourly rate.

Under the hourly system, if a lawyer charges $300 an hour for their services, is there ever a concrete explanation of the reason for the lawyer’s fee? Some lawyers charge $150 an hour. Some charge $600 an hour. Why? Is there any ‘real’ correlation between the lawyer’s expertise and experience and the dollar amount charged per hour? What is a year of experience worth per hour? What are 100 verdicts worth per hour?  Why is the focus on the effort that is put into the project, rather than the outcome? Is a work of art valuable only if it took the artist years to create? Is one work of art more valuable than another because it took longer to create?

In order for value billing to work, the key is to have a detailed conversation with the client about expectations and the manner in which success and fees are measured. That may include advising the client that representation can be had for a lesser price elsewhere – if that can be determined. (Although the service would not necessarily be ‘the same’ elsewhere, as every firm has its own strengths, weaknesses, personalities and style.) Clients are still free to seek a second opinion or to compare prices. But lawyers who have done their homework and established the client’s priorities shouldn’t fear the lower priced options. In fact, telling clients that you charge differently and your prices may be higher than others’ and telling them exactly why may be what closes the deal for you.

Some important aspects of value billing seem to be frequently overlooked, especially by those that are skeptical (or downright hostile) about whether value billing can work for the legal profession. One of the main components of the value based fee system is that the fee is set forth for the client at the beginning of the arrangement. Unlike an hourly fee arrangement, the client knows in advance, based on the specific criteria outlined with the lawyer, what the total fee will be for the entire matter. Should the client’s objectives or the scope of the matter change or deviate from what was originally agreed, the value fee system contemplates a system of ‘change orders’ which would adjust the fee accordingly.

Of course, the lawyer must also determine whether this client or matter is worth undertaking. The client’s desired outcome, budget, system of measurement, expectations, etc. may be unrealistic. The value of the representation to the client may be low, and may not be able to support the fee. But these situations arise under all billing arrangements. If the lawyer believes that she cannot represent the client for a fee that would be acceptable to both lawyer and client, or the client believes the fee is unacceptable, or if there are other areas of conflict, either can decline to enter into the relationship.

Detractors, such as David Giacalone (mentioned in Elefant’s post, and author of the blog formerly known as f/k/a), are concerned that value billing is just a way for lawyers to drive up fees, or that value billing cannot be done ethically. Giacalone posits that asking a client to discuss the value of the legal services to the client  puts the client in a position of ‘bidding’ for the lawyer’s services. He further speculates that the client would then question whether they ‘bid’ too high. But it appears that Giacalone confuses the process of determining the value to the client with the setting of the actual fee. The value to the client determines the fee but it is not the fee itself. As in any other billing arrangement, the lawyer quotes the fee to the client.

Another objection Giacalone makes is that clients won’t understand what ‘value billing’ means, and therefore it’s just another way of confusing the client in an attempt to ‘trick’ them into paying a higher fee. Although the term ‘value billing’ may be ambiguous, lawyers don’t need to use that term when discussing fees with their clients. And ‘tricking’ the client under a value based system is impossible, since the essence of the system is the up-front, in-depth conversation with the client  that establishes the client’s perspective of outcome, definition of success, and criteria to measure success.

Although detractors complain that clients will have no way to ascertain whether a value-based fee is reasonable, the opposite is true. Using a value based system puts the legal fee in the proper context – what is important to the client. By contrast, the hourly fees charged by lawyers are in no way standardized, and there’s no way for clients to tell whether a particular hourly fee is reasonable or not, other than in comparison to other lawyers. The value based fee system lets clients compare the legal fee to what the client thinks is significant. The client can then determine whether the fee is reasonable. And they can still compare the fee to fees charged by other lawyers.

Finally, Ron Baker’s version of value billing includes a guarantee of satisfaction – a written part of the fee agreement that gives the client the right to ask for their money back. Although other billing arrangements certainly leave room for negotiation of fees and lawyers often have conversations with clients about adjustments to those fees, I don’t know of too many lawyers that provide a written money back guarantee as part of their fee agreement.

Lawyers regularly complain that clients don’t understand the value of the services they provide. Asking the client what the service is worth to them – in both tangible and intangible terms – helps clients see that value, and is a logical starting place for discussing fees. It is certainly more logical than ‘how much work’ went into it. That mentality returns to a model which rewards inefficiency and ineffectiveness.
If the client chooses the lawyer because of a level of trust that has been established, and the client is happy with the fees, why can’t the lawyers make a substantial profit? If the client is willing to pay a premium for a certain outcome or service (like turning the contract around in days rather than weeks), where’s the problem?

Among other problems, the hourly system encourages inefficiency, gives lawyers an incentive to overcharge and causes frustration for clients who are concerned about the clock ticking for every task the lawyer performs, regardless of how meaningful it is. The hourly billing system also discourages clients from spending time talking to their lawyers. In short, the hourly billing system puts clients and their lawyers in conflict.

Since the most widely used system for setting fees is flawed, exploring new ways of working makes sense. Will it work? I don’t know. Maybe it will work well for some practice areas and not for others. Maybe it will work across the board, once lawyers get used to having these kinds of conversations with clients and basing their fees on a new standard. Maybe it will be a flop. But it seems to me that it’s definitely worth discussing.

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Allison

Allison C. Shields
Legal Ease Consulting, Inc
Creating Productive, Profitable and Enjoyable Law Practices

P.S. Found a mistake or a bug? If there’s anything that bothers you about this site, I want to know! Send me an email at Allison@LegalEaseConsulting.com. I want this site to be not just a resource, but a refuge for lawyers. I want you to be comfortable here.  So if there’s something that bothers you, please tell me!

 

The Dilemma Over Legal Fees

Carolyn Elefant’s My Shingle blog recently discussed competing on price. Carolyn contends that solos, and particularly new solos, need to compete on price in order to get their foot in the door. She says, “…what incentive does a client have to hire a new attorney unless he or she is charging a lower rate?”

There are lots of reasons clients change law firms, or choose lawyers, other than price. In fact, studies have shown that price is a relatively insignificant factor when it comes to choosing one firm over another. The lowest price doesn’t always win. Many clients leave law firms because they feel the firms are not responsive enough, because the lawyer doesn’t listen to what the client really wants, because the rapport just isn’t there, because the lawyer wasn’t forthcoming about problems with the case, because the lawyer failed to adequately explain the steps to the client and manage the client’s expectations at the outset, and for a host of other reasons.

The lawyer/law firm-client relationship is just that – a relationship. If a solo can establish a rapport with a certain type of client or within a certain type of industry, build or demonstrate knowledge and, more important, trust, price shouldn’t be a major factor in the decision.

A solo that can show that she is capable, listens to the client, focuses on the client’s needs, and is responsive to client calls, requests, etc. can often outshine a larger law firm. Although clients often express dissatisfaction with their representation in terms of the fees that they’re being charged, the real reason for their defection isn’t the rate or fees themselves- it’s that they don’t feel they’re getting value for their money, and they don’t feel that their lawyer cares about them. Solos often are attractive to clients because clients feel they get more personal attention, and they’re willing to pay for it.

Many dissatisfied clients stay with their current counsel because it’s just to difficult or too time consuming to search for another lawyer, who may be just as bad or worse than their current counsel. But a solo (or any lawyer) who can get that client’s attention and demonstrate the qualities the client is looking for in a lawyer is likely to earn some of that client’s business. Then it’s up to the lawyer to show how they can deliver.

The My Shingle post was prompted by an article in the Connecticut Tribune directed toward solos and advising that they shouldn’t undercut their fees because discounting them devalues their services. Although I disagree with Elefant’s position that solos need to compete on price, I don’t necessarily agree with the Tribune article that the determining factor in setting fees should be the ‘prevailing rate’ in the area. Perhaps ‘what the market will bear’ is a better yardstick for determining fees (although Elefant disagrees here, too). But the definition of ‘the market’ is really the key. The market isn’t defined by your competitors – it’s defined by your target clients.

Every firm has a personality and has strengths that may be a ‘fit’ for a particular client or group of clients, regardless of the size of the firm. A particular solo may have expertise that no one else in the area – whether solo, small or large firm, can boast. A solo might have connections, experience or knowledge about a particular industry, business, or particular type of client. If a solo is able to position themselves in such a way that their offering is different than anyone else’s, there is no ‘prevailing rate’ because there is no comparison between the services the solo is providing as against the services provided by another firm. They can be alone in the market.

One way a solo can stand alone might be in showing clients how to cut legal or other costs, without discounting the lawyer’s fee. Solos are often able to keep up with technology and other innovations faster than larger firms, because larger firms have bureaucracy and layers of approval to be negotiated before changes in technology can be made. The costs of these changes are higher for larger firms due to sheer volume. A solo that can demonstrate advantages and savings to their clients can do so without lowering their fees. Ed Poll gets it right in his post, Don’t Lower Your Fee – Fee Is Not The Issue when he says “the total cost of legal services is the relevant factor, not the per hour fee.”

What’s really important, as Poll says, is that you focus on what is really important to the client – and that you find out what that is in each case. Even with the same client, the values and expectations may differ with different matters.

All of this leads, for me, back to the problem of determining the appropriate method of setting fees, which is discussed in a separate article.

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Allison

Allison C. Shields
Legal Ease Consulting, Inc
Creating Productive, Profitable and Enjoyable Law Practices

P.S. Found a mistake or a bug? If there’s anything that bothers you about this site, I want to know! Send me an email at Allison@LegalEaseConsulting.com. I want this site to be not just a resource, but a refuge for lawyers. I want you to be comfortable here.  So if there’s something that bothers you, please tell me!

 

Value Based Billing For Lawyers – Will it Work?

Nobody likes change, and perhaps lawyers are even more resistant to change because they’re so used to relying on ‘precedent’ to determine what they can or should do in the practice of law. But it may be time for some more creativity when it comes to billing clients. Many assume that the market wants and supports the billable hour because that’s what everyone is used to. Lawyers fear that going to a different fee model automatically means they’ll be making less money, and, at least according to the lawyers, clients aren’t willing to pay more for legal services. I don’t know that either of those assumptions are true. I do know that there are problems, on both sides of the fence, with using a billable hour model. 

One of the main complaints from clients about hourly billing is that they are unable to budget or to anticipate legal fees. One of the possibilities is to establish ‘flat fee’ billing. But most lawyers assume that flat fee billing still means billing based on a particular activity, and they base the fee on the time it takes to perform that task. The same activity may have a different value for different clients, which may justify a different fee. ‘Flat’ fees don’t necessarily mean that the fee is the same for every client, or that the fee is always the same. It means that the lawyer needs to discuss the client’s expectations and intended outcome, as well as the value of those particular services to the client, and establish a fee based on the value. It is the value which will determine what the client is willing to pay – not the activity itself. 

One of the objections to a fixed price model which was raised in the comments to the aforementioned posts was that lawyers can’t possibly influence the fees that are charged for legal services. Legal services aren’t coffee or water, but years ago, I’m sure that if you asked Americans what they would be willing to pay for a cup of coffee, their answer would be significantly less than what many spend on Starbucks without blinking an eye(even considering inflation). Starbucks definitely influenced what Americans are willing to pay for coffee. And what about bottled water? Before bottled water, water was consumed from the tap – for free. But someone found a way to get people to not only pay for bottled water, but to pay relatively high prices for it.

Both of these examples demonstrate that value is different for different customers, and that the business (or law practice) that can do a good job of establishing that they provide a value over and above what the customer is used to, can certainly sell at a different price point. These examples may also knock out the assumption that the only way to succeed with a ‘flat fee’ model is by cutting expenses or services; in fact, they demonstrate that the opposite may very well be true.

Although value may be based on results, it isn’t always based on what the lawyer would typically consider ‘results,’ and this can create riction between lawyers and clients in any fee arrangement. Goals and value need to be established in advance: perhaps the client is more concerned with making a point than with a particular result, monetary or otherwise, or is willing to pay for ‘peace of mind’ or some other intangible result. These situations are prime for an alternative fee agreement. 

There could be many ways of determining a fixed fee established in advance with the client based on the client’s objectives and the value to the client, as opposed to a fee that is based on the time spent or on the specific activity to be performed. I don’t know what the “ideal” answer is, but I think the exploration needs to be done, and that lawyers need to start coming up with creative ways to devise fee arrangements that work better for themselves and their clients.

Michele Golden of Golden Practices in a post entitled, “Inside The Firm of The Future,” notes that, “this topic evokes more passion, on both sides of the discussion, than I’ve ever witnessed in the professions.” I happen to think that’s a good sign – to me, if there’s passion involved, it’s worth discussing, and likely that a breakthrough is on the way. 

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Allison

Allison C. Shields
Legal Ease Consulting, Inc
Creating Productive, Profitable and Enjoyable Law Practices

P.S. Found a mistake or a bug? If there’s anything that bothers you about this site, I want to know! Send me an email at Allison@LegalEaseConsulting.com. I want this site to be not just a resource, but a refuge for lawyers. I want you to be comfortable here.  So if there’s something that bothers you, please tell me!

 

Take Care When Drafting Your Fee Agreements

The April 14, 2006 ABA Journal e-report contained an interesting article that is another reminder to make sure your fee agreement says what you think it says. The article was about a lawyer in Louisiana who took a will contest case on a contingency fee, but after negotiating a good settlement for his client, ended up with nothing when his client refused to settle. 

According to the article, the fee agreement indicated that the lawyer would be entitled to one third of ‘whatever additional property or money we can get for you.’ Although the lawyer was able to negotiate a settlement wherein his client would have received over $20,000 more than what he would have been entitled to under the will, the client refused to settle, fired the lawyer, and attempted to pursue recovery on his own, but lost the case.

Although the trial court and one appellate court agreed with the attorney that he was entitled to one third of the settlement amount, the Louisiana Court of Appeals reversed, noting that since the client obtained no additional recovery, the lawyer was not entitled to a contingent fee.

The Louisiana lawyer submitted a brief which, at least according to the article, seems to express outrage that the client didn’t seem to care about the money, but was more interested in forcing a trial and appeal on his adversaries. The lawyer’s brief indicates surprise that he would be expected to spend several days in court (a 180 mile round trip distance) just to lose the case, and wouldn’t even be able to recover his expenses. But it was the lawyer’s fee agreement that dictated the result.

This result is, in my experience, not all that uncommon in contingent fee arrangements. The client is always the one with the power to make the ultimate decision whether to settle or to move forward. Often, the client’s decision to move forward with a trial rather than accepting a settlement offer results in no recovery for the client, and no recovery for the lawyer.

What many lawyers seem to forget when taking on clients is that although the lawyer may see the case in terms of monetary value, the client doesn’t necessarily see it that way. Litigation, particularly litigation pitting family members against one another (such as divorce, or will contests like the one here) often has at its root more emotion than reason. Lawyers often express frustration that the client doesn’t want to accept what the lawyer considers to be a ‘good’ settlement or complain that their clients aren’t ‘making sense’ . But many times, the problem is with the lawyer, not the client. What makes sense emotionally to the client might not make sense financially. It’s the lawyer’s job to discuss these issues with the client not only during the representation, but before any fee agreement is signed.

It is the lawyer’s responsibility to explore with any potential client what the client seeks to accomplish by hiring the lawyer. Then, and only then, can the lawyer decide whether the case is one the lawyer can or should take on, and if so, how the lawyer’s fee should be structured. If the lawyer decides to take on the client, expectations must be specifically discussed and memorialized so that both the lawyer and the client are sure that they are working toward a common goal. The lawyer’s fee agreement should reflect that, and should be a ‘good deal’ for both the client and the lawyer.

The contingent fee agreement is one which is inherently risky for both lawyer and client. But often lawyers forget that they are shouldering some of the risk, and get angry or frustrated when their gamble loses. If the lawyer isn’t willing to take the risk then the contingent fee agreement isn’t the way to go. 

Perhaps the attorney in this story didn’t have had a frank discussion with his client before any fee agreement was signed to determine what his client’s stated objectives were. That conversation may have revealed that the client expected a certain specific monetary recovery that the lawyer didn’t think was possible. If that was the case, and the client indicated an unwillingness to settle for anything less than the stated amount, the lawyer would have at least been better informed about the risks he would be taking by agreeing to represent the client at all, particularly under a pure contingency arrangement.

If the lawyer had learned that the client’s motivation was not the monetary recovery at all, but that the client wanted to force the family through a trial (as the lawyer later claimed), the lawyer could have agreed to take the case under a different fee arrangement. But even without being sure of the client’s motivation, the lawyer’s fee agreement could have minimized some of the risk to the lawyer.

What alternatives were available? There are probably an unlimited number of possibilities. The lawyer could have written the fee agreement to require the client to pay expenses regardless of the outcome. He could have requested an additional fee for trial. He could have requested a flat fee up to trial with a bonus for settlement above a certain amount. He could have asked the client what the value of having the emotional ‘closure’ of a trial was to the client, and based his fee on that, rather than on a percentage of the recovery.

Just because the most traditional and most common methods of compensation for lawyers have been the one third contingency and the hourly rate doesn’t mean that lawyers should conform to those old practices, which may be some of the worst ways (for both lawyers and clients) to compensate lawyers for the work that they do. Lawyers draft their own fee agreements. It’s time to get more creative and do some serious thinking about how lawyers benefit their clients, and how to structure fee agreements to reflect those benefits.

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Allison

Allison C. Shields
Legal Ease Consulting, Inc
Creating Productive, Profitable and Enjoyable Law Practices

P.S. Found a mistake or a bug? If there’s anything that bothers you about this site, I want to know! Send me an email at Allison@LegalEaseConsulting.com. I want this site to be not just a resource, but a refuge for lawyers. I want you to be comfortable here.  So if there’s something that bothers you, please tell me!

 

How Much Should Lawyers Charge?


The bad news is there’s no ‘easy’ way to set fees. The good news is that if done right, your fees can be a real selling point.

I was privy to an interesting conversation yesterday among a number of lawyers in response to one attorney marketing himself as the ‘lowest priced.’ Not surprisingly, some reacted to the issues of ‘commoditization’ of the legal practice and competition based upon price alone. I think that competing solely on price isn’t the best way to go for marketing legal services. But this post isn’t about marketing, it’s about fees.

One contribution to this discussion was that lawyers shouldn’t raise their rates just because everyone else is charging a higher amount for a particular service. This same contributor opined that lawyers’ rates should be based upon experience and ‘what it takes to be profitable.’

While I don’t necessarily disagree that raising rates just because another firm does is the way to go, I have to wonder why some attorneys seem to believe that raising rates is inherently ‘bad’ – that charging a higher rate when they ‘can’ do the work for less is somehow unprofessional. Why should lawyers undervalue their services?

Although I didn’t probe this particular attorney for further insight, it would seem that setting fees based solely on experience and ‘what it takes to be profitable’ fails to take into account an individual lawyer (or law firm’s) unique skills and talents (as distinct from ‘experience’), creativity and innovation. And how does one define what it takes to be ‘profitable?’ If ‘profitable’ means that the income exceeds the expenses for that particular matter, how much over the expenses is it ‘appropriate’ for an attorney to charge? $1? $10? $100? $1000? Why shouldn’t a lawyer that brings a unique perspective or a unique way of resolving a client’s problem be able to charge more? Are lawyers, as professionals, somehow obligated to limit themselves to a particular profit margin?

Basing fees solely on what’s ‘profitable’ for the lawyer implies that the value of the lawyer’s services is determined by the cost to provide those services. In reality, this is rarely the case. We accept that cost isn’t the only factor in determining price or value in other areas. It is understood that the price we pay for art, or electronics or clothing isn’t based solely on the cost to manufacture those items, but also takes into account the value we place on those items. We accept that the individual that comes up with the ‘next great idea’ for a product that saves us time and effort is worthy of receiving large sums of money for their invention. But for some reason, many refuse to accept this principle when it comes to legal fees and innovating legal thinking. Lawyers contribute to the problem by ‘educating’ the public to determine legal fees based solely on the number of hours worked.

This brings me back once again to value based fees; if fees are based upon the value the lawyer’s services bring to the client, the amount of the lawyer’s ‘profit’ is irrelevant. Indeed, many times, a client is much better served with a creative solution that takes much less time than a ‘tried and true’ solution which takes longer to complete. If the lawyer’s fee is based solely on the ‘quantifiable’ input to the case – time and expenses, and perhaps even experience, the lawyer’s fee will likely be much lower for the lawyer that got the client the quick, creative result. This kind of pricing puts the lawyer and the client in conflict, and discourages creative, innovative problem solving. 

If lawyers focus on the benefits to their clients as a result of the lawyer’s services, rather than the number of hours worked on a matter or the cost to the lawyer of achieving the result, chances are that both lawyers and their clients would be much more satisfied and the quality of the legal services provided would be better; lawyers would be motivated to provide the best solutions for their clients – not merely the most costly ones or the ones that take the most time.

Of course, I’m not suggesting that all lawyers that charge based on hours billed are providing lesser quality service. But the inherent conflicts in the hourly billing system are troubling, particularly when this system leads lawyers and non-lawyers alike to conclude that there’s something ‘wrong’ with lawyers profiting from their work or raising their rates. If lawyers don’t value the services they provide to clients, how can they expect the clients to value them?

It’s worth considering also that higher rates can also ultimately benefit the client. If at least some of the profit earned by a law firm is re-invested in the firm – in the personal and professional development of the lawyers and staff, in recruiting the best people to serve the client, in technology which makes the job easier, faster, more efficient, in researching ways to better serve the client – those ‘higher rates’ or ‘additional profits’ add up to a better experience and higher quality service for the client. And obviously, firms that are in a better financial position are often in a better position to give back to the community in other ways as well, by contributing financially and providing pro bono services. Lawyers that are merely subsisting are arguably in a much weaker position and are less able to be effective in helping their clients and the community at large.

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Allison

Allison C. Shields
Legal Ease Consulting, Inc
Creating Productive, Profitable and Enjoyable Law Practices

P.S. Found a mistake or a bug? If there’s anything that bothers you about this site, I want to know! Send me an email at Allison@LegalEaseConsulting.com. I want this site to be not just a resource, but a refuge for lawyers. I want you to be comfortable here.  So if there’s something that bothers you, please tell me!

 

Calculating Rates for Legal Services

The June 16, 2006 edition of the ABA Journal e-report included an article discussing how the Second Circuit set fees for one solo attorney. The case involved an ERISA claim where the attorney was successful in arguing that his client’s pension should not be reduced because of a break in service. The attorney based his proposed billing rate on the billing rate of six attorneys in larger firms that handled similar cases. The fee proposal submitted to the court was accompanied by affidavits from those six attorneys.

The District Court reduced the lawyer’s claimed hours for reasons including work on unsuccessful claims the Court deemed not sufficiently related to the main claim and record keeping which did not adequately separate ‘administrative’ from ‘legal’ tasks. In addition to the reduction in hours, the Court set the billing rate at $100 below the attorney’s proposed rate, citing the fact that the attorney was a solo, and therefore had low overhead costs.

The matter was appealed and remanded to the District Court where a second judge determined the solo’s fee based upon a ‘blended rate’ which the Court determined by estimating what a larger firm might bill for specific tasks if they were performed by attorneys with differing levels of experience.

The matter was appealed again, and the Second Circuit noted that, rather than creating a fictitious ‘blended rate,’ the attorney’s fee should have been calculated based upon the different tasks actually performed by the attorney. The Second Circuit also rejected the notion that a lawyer’s rate can be lowered merely because he or she practices as a solo.

The matter was once again remanded to the District Court for determination of the lawyer’s fees.

Although the ruling is a victory of sorts for solos because the Court recognized that an attorney’s status as a solo doesn’t automatically mean that lawyer’s fees should be less than those charged by a larger firm, it may also create more problems for attorneys whose fees are reviewed by the courts. Will the courts scrutinize every single task performed by the lawyer in order to determine the appropriate fee? It seems that reducing the number of hours for tasks not considered ‘legal’ tasks would be more appropriate than reducing the attorney’s rate. Notably, according to the article, the original District Court judge did both.

Since I’ve been discussing value-based fees recently, I’m curious how the courts might rule on value based fees. If a lawyer bases his or her fee on value to the client (where the method for calculating fees is not determined by statute), and quotes the client a fixed fee up front, will the courts uphold the fee, or insist on scrutinizing the particular tasks performed, regardless of the result or the client’s satisfaction/agreement to the method of calculating fees? Only time will tell.

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If you liked these articles, subscribe to my e-newsletter, and you’ll receive new articles in your in-box. The articles in the newsletter are not available to the public – the only way to see those articles is to receive the newsletter.

Already a subscriber? Want to learn how I can help you? Learn more about the products and services I offer by clicking here.

Allison

Allison C. Shields
Legal Ease Consulting, Inc
Creating Productive, Profitable and Enjoyable Law Practices

P.S. Found a mistake or a bug? If there’s anything that bothers you about this site, I want to know! Send me an email at Allison@LegalEaseConsulting.com. I want this site to be not just a resource, but a refuge for lawyers. I want you to be comfortable here.  So if there’s something that bothers you, please tell me!