You’re starting a private law practice, congratulations! Top on your to-do list is hiring and establishing your rates. This comprehensive guide will help you set competitive, reasonable rates — whether you’re a solo practitioner or the head of a law firm.
As of January 2021, the average hourly billing rate for lawyers in the U.S. was $300 an hour. When creating your own law practice, your rates need to be both fair to clients and profitable for your practice.
What to consider when determining rates
Your specialty
Will your law firm specialize in family law, bankruptcy law, personal injury, criminal defense, or another branch of law? This will help you narrow down your search when hiring lawyers, growing your practice, and establishing your rates.
Your expenses
Before determining how much to charge to make a profit, you need to understand how much you spend.
Costs as a legal professional can add up, especially if you're the owner of a small firm. And every expense, big and small, will be subtracted from your revenue. To determine how much you need to bring in, calculate what you spend each month on the essentials:
- Rent and utilities
- Insurance
- Business registration fees
- Marketing costs
- Office supplies
- Travel
- Employee wages and benefit programs (if applicable)
Market rates
The market rate is the current average cost of legal services in your area. Market rates for legal professionals generally hinge on two factors:
- Supply and demand – If there’s demand for your specialty and few lawyers to go around, your rates can be higher. If the opposite is true, you may need to reduce your rates to draw clients from competitors.
- Cost of living - Lawyers in higher cost-of-living locations typically charge more than legal professionals in lower cost-of-living areas. For example, according to the Bureau of Labor Statistics, the hourly mean wage of a lawyer in the District of Columbia is $95.59/hour; in Florida, the same position has an hourly mean wage of $62.21/hour.
Your experience
As with many positions, your level of experience and reputation can affect how much people are willing to pay to work with you.
If you’re a fresh law school graduate, you’ll likely need to offer affordable rates and promotions to attract clients. Once you have a few wins under your belt, you can increase your prices.
Once you establish your practice, a free Business Page on Nextdoor will help you build trust with local clients, unlocking an instant following of registered neighbors who need your expertise and will recommend a job well done.
The specific case
Not all cases are created equal, so your rates may change based on the needs of your client. If you need to provide specialized services or assemble a team of lawyers to tackle a case, your rates may be different. Many firms have initial calls or interviews with prospective clients to gauge the complexity of a case. Clark Law, LLC of Baltimore, MD, even includes an intake form on its website.
Ethics
Setting a fair price for your services isn’t just good business, it’s part of your duty as a lawyer. As explained by Rule 1.5 of the American Bar Association’s Model Rules of Professional Conduct, a lawyer “shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.”
Different pricing structures for lawyers
With a better understanding of your finances and the value of legal counsel in your area, you can work on your pricing model and what type of pricing structure you want to offer.
Hourly fee
Charging by the hour is the most common lawyer pricing strategy and assigns value to your time. While called “hourly” pricing, most lawyers bill by a fraction of an hour (every 6, 10, or 15 minutes).
In many cases, charging an hourly rate makes sense, as it can be challenging to predict how much time you'll spend on a case. Hourly pricing ensures you’re paid for all of your work.
However, hourly pricing may dissuade potential clients from working with you, as there’s no limit to how much the case could cost them. A different pricing model may be better for more predictable jobs or more budget-conscious clients.
Flat fee
With a flat fee structure, you determine a set price for the various services you offer, without accounting for time. Flat fees are best for more routine cases, such as:
- Will preparation
- Mortgage foreclosures
- Uncontested divorces
- Immigration applications
The benefit of a flat fee is the lack of uncertainty for you and your client. From the outset, all parties understand the exact cost of your services.
Contingency pricing
Contingency pricing involves taking a percentage of a client’s settlement provided there is a payout. Clients may see a contingency pricing model as an incentive as your earnings depend on you winning.
Taking a contingency fee can be worthwhile if:
- A client can’t otherwise afford to seek legal advice
- You expect a sizable payout
- You’re handling a case involving personal injury or property damage
The downside of contingency pricing is that it can be high risk, as you could earn next to nothing from a case. Although your contingency agreement will likely include some set fees, your total payout will be much lower if you lose the case.
Subscription pricing
A subscription model allows you to reach small business owners who need a dedicated lawyer for minor projects and questions. It’s also guaranteed income for your practice each month.
Becker Law LLC from Decatur, GA, offers three subscription options for clients who need infrequent legal counsel:
- Entry (three hours of work)
- Standard (five hours of work)
- Pro (ten hours of work)
Retainer fee
A retainer is like an upfront deposit; when a client puts you on a retainer, they pay a lump sum into a trust account, and you deduct your costs from the pool of funds anytime you do work.
Many lawyers use retainers as a way to be “on call” for a client without having to worry about sending multiple invoices for ad hoc services. Retainers often work well for corporate clients who require occasional advice or support.
A retainer is technically a method of billing rather than a way of determining pricing; the amount you deduct from the account each time could be hourly or a flat fee.
Sliding scale
A sliding scale lets you adjust your hourly rates or flat fees based on a client’s income. High-income clients pay more for your services, supplementing the fees for low-income clients who need financial support. This equitable approach to legal services can help you increase your client base, making your expertise available to all.
Earn what you deserve with Nextdoor
Your fee structure will be impacted by local competition and what your clients are able to pay. The best way to reach your local community is through Nextdoor, where you can connect with future clients and grow your practice as they recommend your services. Free posts will help you introduce yourself to the neighborhood and spark the conversation around your expertise. Nextdoor’s easy-to-use advertising tools give you what you need to promote your services and growing reputation.
With a handful of glowing recommendations under your belt, you’ll set yourself apart, and be able to charge what you’re worth.
