Law Practice Management-- How To Determine Your Costs
Figuring out costs is a difficult law practice management task for most lawyers when analyzing their law office marketing strategies. In figuring out costs for particular services, lawyers typically fall short of what they must charge. When making their law company marketing plans, too many attorneys are afraid of even charging the competitive cost for their services. Further, they make the pricing choices typically without any data or conceptual structure. In addition, rather of focusing their efforts on how they can justify getting top dollar for what they use, they charge a cost that is typically way too low and typically in fact can frighten prospective clients who think there is something missing from a service that is " low-cost". In addition lots of attorneys don't recognize that the majority of buyers in the market without a doubt are "value buyers" and not trying to find " inexpensive".
Before you sit down and begin believing through your law practice management prices method you need some distinctions around rates commonly used in law firm marketing preparation. Do understand a law practice management law company marketing strategy is not reliable if you just bring in individuals who desire to pay the most affordable charge for a service. Instead, you want to focus your law practice management and law firm marketing strategies on bring in clients who will end up being long term assets to the firm.
There are generally 4 methods of determining how much you should be charging for your services. Lets move right into those now.
The Marketplace Approach In Law Practice Management Prices
This is one excellent way of figuring out pricing. Get your assistant to support you in this law practice management task and spend some time discovering what the variety of pricing is in the neighborhood. Have her do a "mystery buyer" research study by calling around as if he/she were a potential client and discover out what your rivals say on the phone to her around pricing. 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 competitors and use to exchange your costs for their charges or you might do that with other attorneys yourself in your market. If you really wish to get into it and have optimal information you can write maybe a few dozen rivals in your marketplace and say you are doing a fee study and if they would send you their fee list you will develop a composite list that does not identify those responding 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 common services used in your practice area. Now you will see what people are charging for services comparable to those you provide. You need to be able to develop a series of rates. Utilize this range to set prices for your own services. My suggestion in law practice marketing planning is to charge at the 75% level of the list. You ought to be at or in the top 25% of the costs.
Keep in mind that in general it is not a excellent law practice management method to contend on rate. Many potential customers will see rates that is too low as a signal that there is something missing either from the service, the supplier, or the company. And people who are searching for a low rate will follow that low rate any place they can discover it instead of becoming long-term clients. Be sure that your cost covers your costs and a sensible revenue margin.
The Cost Approach in Law Practice Management Prices
This law practice management prices approach is really simple actually. One simply identifies what the costs are to deliver services or items and adds on a affordable earnings, somewhere between fifteen percent at the least and maybe thirty three percent at the most. The most common mistake in law practice management utilizing this approach is to disregard to include some form of your expense. Solo and small firm lawyers tend to not include their own income!
In law practice management often you count yourself out of the costs and you need to include yourself in the expenses. Frequently you are doing at least some of the management work. If you are all 3 of these in one, you should consider one income as due you for your time and know-how as the service technician and manager as well as a earnings of fifteen to thirty percent due you as the owner.
Fixed Rate Approach in Law Practice Management Prices
This is the method used by lots of vehicle mechanics (it is called "the flat rate book") and other service suppliers. This method is where you figure out a set rate for different jobs and charge that rate no matter what. Another example utilizing this approach is how handled health care has actually used this system with healthcare facilities and physicians .
The "Rule of Three" in Law Practice Management Prices
This " guideline" called the "rule of 3" utilized in law practice management is not what your CPA may inform you and it does not fail you either. Ask your CPA what they think about it and they will like it. To start we are going to be believing in thirds. For the very first 3rd we will take the overall quantity of salaries/bonuses (not benefits just wages-- benefits enter into the 2nd third coming next) why not try this out for the profits generators and/or timekeepers (this includes you if you are creating earnings) and call that our first 3rd. So accumulate the wages of the attorneys, paralegals, and legal secretaries who create income or are timekeepers and call this your very first 3rd (lets just state that number was $100,000 to keep it easy). Whatever that number is take that number again and it is your second third which we will call your "overhead" ( hence that 2nd third is $100,000 and do not forget you if you are doing some managing partner type responsibilities since that part of your time goes here in overhead). Then take that very same number and we will call that your last third, which we will call gross profits (another $100,000). What you require to do is take the total quantity (in this example $300,000) and now figure out how much you need to charge per billable hour, per fixed rate or the number of contingency cost cases won to be sure you hit the target we must hit offered our very first 3rd number times 3 (in this example $300,000).
This technique reveals you just how much per hour you official statement require to charge. Since you understand how lots of next billable hours each earnings generator can do each month, simply divide that into your overall of all thirds ($300,000) to see what you require to charge per billable hour to make your numbers come out correctly. As long as you hit your targets you will be guaranteed of a 15% to 30% net earnings from your operations. If you are the owner of the practice you are worthy of a fair profit as well do not you agree? This approach is referred to as the Guideline of 3. , if this method is a bit too complicated do feel complimentary to contact me and I will assist you arrange it out in a few minutes on the phone.
It is a excellent idea to think through all of these prices approaches in determining your law practice management pricing technique prior to setting a price and moving ahead with a law office marketing strategy to ensure you are thoroughly checking out all alternatives. Remember the propensity for many lawyers is to price too low. Do not do that! In another post I will inform you how to speak to prospective customers so you never ever have a issue getting the fee you should have.