Can you really raise your rates in 2010?

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Published on 1/11/10

As the 2009 holiday season began, I received an e-mail from a lawyer asking if I had a standard letter that his firm could use to inform clients that its hourly rate would increase on Jan. 1.

With most firms having faced more than two years of pressure by clients to cut rates, it was interesting, to say the least, to learn of a firm intending to do the opposite. Yet a little research revealed that the firm is not alone.

The Altman Weil consulting company recently surveyed nearly 300 U.S. law firms and found that those firms intend to raise their 2010 rates by an average of more than 3 percent. Also, more than 80 percent of the managing partners at the nation’s 200 largest firms who responded to a survey anticipated raising rates in 2010.

I must point out, however, that these surveys focus on the larger firms only; these firms deal with corporate America where such increased costs are expected, notwithstanding the “Value Challenge” campaign by the Association for Corporate Counsel for lower legal costs.

Certainly, there is no prohibition against raising rates at any time. As I’ve written before, the only ethical obligation is that legal fees be “reasonable” by each lawyer’s and firm’s calculation of the simple equation: P = R – E (profit (take home pay) equals revenue collected, less expenses).

Each answer to that equation, and the resulting fee rationale, will be different. Your growth history, your professional reputation and success, your competition, the nature of your practice and clientele, the economic environment and your firm’s own cost structure will have an impact on a potential rate increase.

Although there is no universal guideline on raising fees, the following considerations should be taken into account in any fee increase decision:

  • You are handling a big-ticket or break-the-company case successfully, one for which the client’s options are limited and the perception of need — and therefore value — is high;

  • You have more business than you can handle without expanding, and the loss of clients due to an increase will balance your work while likely increasing both revenue and profit;

  • Your clients say your rate or total fee is extremely reasonable, probably showing that your fee structure is at the lower end of the spectrum compared to your competitors;

  • You get business from other lawyers because clients won’t pay their rates, a sure indication that you are priced below the market;

  • You have a gut feeling of comfort with the new rate that you want to charge.

There are, of course, certain times when even if your responses to these considerations are positive, raising rates is not feasible — such as the eve of a trial or closing, when an increase could be seen as extortion, or you have agreed to a stated fee or retainer in the engagement letter.

Beyond this, however, accept the fact that those clients who value your service will remain with you regardless of higher fees.

That can actually create several opportunities. With fewer clients, you can work less at the same average revenue or have the time to increase your marketing efforts and replace defecting clients with new ones at the new, higher rate, which raises your average revenue per client.

You may even (heaven help us!) have more time to spend with your family. The decision is yours. Make it carefully.

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