Law Practice Management-- How To Determine Your Costs
Determining costs is a tough law practice management task for the majority of attorneys when analyzing their law practice marketing strategies. In figuring out fees for certain services, attorneys typically fall short of what they must charge. When making their law company marketing strategies, too many attorneys are scared of even charging the competitive rate for their services. Even more, they make the pricing decisions frequently without any information or conceptual structure. Additionally, instead of focusing their efforts on how they can justify getting leading dollar for what they use, they charge a cost that is typically way too low and often really can frighten off possible customers who believe there is something missing out on from a service that is " low-cost". Additionally many attorneys don't realize that many purchasers in the marketplace by far are "value purchasers" and not searching for " inexpensive".
Before you sit down and begin thinking through your law practice management pricing method you need some differences around prices frequently used in law firm marketing preparation. Do know a law practice management law firm marketing strategy is not effective if you only bring in individuals who desire to pay the most affordable charge for a service. Rather, you want to focus your law practice management and law firm marketing plans on bring in customers who will end up being long term assets to the firm.
There are essentially 4 methods of determining how much you must be charging for your services. Lets move right into those now.
The Marketplace Approach In Law Practice Management Pricing
This is one great way of determining rates. Get your assistant to support you in this law practice management job and invest some time discovering what the variety of pricing is in the neighborhood. Have her do a " secret buyer" research study by calling around as if he/she were a potential client and discover out what your rivals state on the phone to her around rates. She may need to call from her house phone to prevent caller ID. As another choice you could have him/her call other assistants or paralegals at your rivals and provide to exchange your charges for their fees or you might do that with other legal representatives yourself in your market. If you actually wish to enter it and have optimal data you can compose perhaps a few lots competitors in your market and state you are doing a fee study and if they would send you their charge list you will produce a composite list that does not identify those reacting and send them a copy of the results. To keep it basic for them include a stamped, self-addressed envelope with a list of the most typical services provided in your practice area. Now you will see what individuals are charging for services comparable to those you provide. You need to have the ability to come up with a variety of prices. Use this variety to set rates for your own services. My recommendation in law office marketing preparation is to charge at the 75% level of the list. So you must be at or in the top 25% of the costs.
Keep in mind that in general it is not a excellent law practice management strategy to compete on rate. A lot of prospective clients will see prices that is too low as a signal that there is something missing out on either from the service, the provider, or the firm. And individuals who are looking for a low rate will follow that low cost any place they can find it rather than ending up being long-lasting customers. Be sure that your cost covers your costs and a sensible earnings margin.
The Cost Method in Law Practice Management Pricing
This law practice management pricing technique is extremely simple truly. The most common error in law practice management utilizing this technique is to disregard to consist of some type of your expenditure.
OK, let me state it again. In law practice management frequently you count yourself out of the expenses and you ought to include yourself in the expenditures. Why? Frequently you are doing a minimum of some of the technical work. Yes? Frequently you are doing at least a few of the management work. Yes? As the owner of the service you are due a sensible profit. Yes? If you are all 3 of these in one, you must consider one income as due you for your time and proficiency as the service technician 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 managerial and technical work in the expenses part of this formula.
Fixed Rate Approach in Law Practice Management Prices
This is the technique used by numerous car mechanics (it is called "the flat rate book") and other service companies. This technique is where you identify a fixed rate for various jobs and charge that rate no matter what. He makes more if the mechanic invests less time than allocated for the job. He makes less if he invests more time than allocated. However in the end, everything evens out (well, usually to the mechanics' favor if you ask me). Another example utilizing this approach is how handled health care has utilized this system with medical professionals and health centers . Attorneys can use this system if they desire.
The "Rule of 3" in Law Practice Management Pricing
This " general rule" called the "rule of 3" 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 consider it and they will like it. To start we are going to be thinking in thirds. For the very first 3rd we will take the total quantity of salaries/bonuses (not benefits just wages-- benefits enter into the 2nd third following) for the revenue generators and/or timekeepers (this includes you if you are producing earnings) and call that our first 3rd. Include up the wages of the attorneys, paralegals, and legal secretaries who produce earnings or are timekeepers and call this your very first 3rd (lets simply say that number was $100,000 to keep it simple). Whatever that number is take that number again and it is your 2nd 3rd which we will call your "overhead" (thus that second third is $100,000 and don't forget you if you are doing some handling partner type tasks because that part of your time goes here in overhead). Then take that exact same number and we will call that your last third, which we will call gross earnings (another $100,000). What you need to do is take the total amount (in this example $300,000) and now determine just how much you need to charge per billable hour, per repaired rate or the number of contingency cost cases won to be sure you hit the target we must hit given published here our first third number times 3 (in this example $300,000).
This approach shows you how much per hour you need to charge. If you are the owner of the practice you should have a reasonable revenue as well do not you concur? If this approach is a bit too complicated do feel free to call me and I will help you arrange it out in a few minutes on the phone.
It is a excellent idea to analyze all of these prices approaches in determining your law practice management rates technique prior to setting a price and continuing with a law firm marketing strategy to guarantee you are thoroughly checking out all options. Keep in mind the propensity for many lawyers is to price too low. Don't do that! In another post I will tell you how to speak with potential customers so you never have a issue getting the charge you should have.