The pricing gap: A big challenge for small practices

One of the biggest challenges that we have as owners of small practices is what to charge for our services when dealing with a practice that works with consumers and small businesses. There is a significant gap on what we believe we should charge for our services based on our skills and experience and what the consumer is prepared to expend for legal services. With the increased pressure of competition from other attorneys and “quasi” legal services, such as unregulated paralegal services and other online “legal” services, which offer similar services at a significant discount, I often find myself negotiating my fees with a prospective client. As I talk to colleagues in my area, they find themselves in the same position. The challenge that we have as owners of a small practice is that it is virtually impossible to systematize the practice if the rate that we offer for our services has to be negotiated every time we sit down with a prospective client.

Take it or leave it

Unfortunately, there is no clear answer on how to resolve this issue. However, there are various approaches that we can take that each offer their own advantages and disadvantages. For instance, take a Breach of Contract case of a dispute of $100K, depending on the complexity of the contract, the number of witnesses and other factors; you determine that the case could take around 100 hours to take the case to trial. If your hourly fee is $300 per hour for attorneys and $100 for paralegal staff, like many small firms, you are asking the client to make a $40,000 commitment to litigate a $100K claim. The reality is that very few people will make this type expenditure to defend or pursue a lawsuit. In this case, we can adopt the “take it or leave it” approach and the client can either agree to our fees or find another firm who can provide the service for less. In this scenario, the client would most likely continue shopping for another law firm.

The unpredictable retainer

Another common approach is to take a retainer and to begin the representation to a predetermined stage or time period and re-evaluate the fees going forward at that point. The problem with this approach is that it is unlikely that the work would be completed by this initial retainer and another (unpleasant) conversation has to take place to revisit the issue of fees. This is like building a house and giving the contractor a small deposit to get started with the construction knowing very well that it would not be possible to build the house with the deposit alone. In this case, you can either ask for additional funds or send monthly invoices to the client and hope to receive payment. After a period of time of the invoices not getting paid, you either negotiate a reduced fee with the client or withdraw from the representation. None of these are good options for your practice. This is the only business that I am aware of that the consumer is expected to provide a “blank check” for services.

A long-term solution needed

The reality that we face in a consumer or small business practice is that the client base, generally speaking, does not generate the income required to support the $300+ hourly fee that attorneys typically charge. A legal bill is a “high ticket” item for most consumers and small businesses; yet, unlike other purchases such as auto or a home, or services such as healthcare, it does not have a financing source. Until a financing option for legal services is available to consumers and businesses to cover unexpected legal expenses, this dilemma will not be resolved anytime soon. In the meantime, we have to continue negotiating our rates similar to a car purchase or real estate transaction. This is a difficult way to develop a consistent pricing structure for our practices. There has to be a better way to provide the consumer with a degree of predictability for the fees that we charge for our services and for us to have a more systematic and realistic approach to our fees.