How Much Should I Charge? Setting Rates and Billing for Estate Planning Services
When starting a law practice, one of the places that people tend to get tripped up is in choosing how to bill for services. How much should you charge? Should you bill hourly or charge flat rates? What services should you charge for and which will be included?
Throughout the legal profession, it is most common for attorneys to charge hourly rates. However, in the estate planning world (as well as in other transactional legal services), flat-fees or value-based rates are starting to become more popular. This article will take a look at the pros and cons of flat-fees v. hourly rates, as well as go into detail about how to set your rates.
In Support of the Fixed-Rate Model
The phrases "flat-fee" and "value-based" are sometimes used interchangeably, but they do have a distinction. Flat-fees generally refer to a fee structure in which you would make estimate how long a particular service typically takes, and set a fee based on that hourly rate. For example, if your hourly rate is $250, and you expect that a simple Last Will and Testament takes you two hours to draft plus a one-hour client meeting, you may decide to charge a flat-fee of $750 (3 hours at $250/hr). A value-based charging system, by contrast, is not tied to the hours it takes to complete the work but rather on the value it provides for the client. So, if a simple Last Will and Testament, counseled and drafted by an experienced attorney is worth a value of $800 to a client, that’s what the attorney would charge.
In the above example, legal service fees are based on a particular document to be prepared (Last Will and Testament). However, estate planning firms are more commonly grouping documents and counseling together into service packages that provide greater value to the clients. Under this model, an attorney may provide a one-hour estate planning counseling session with a client to determine what he or she needs, plus all documents required for a simple estate plan (Last Will and Testament, Power of Attorney, Living Will, Advanced Healthcare Directive, etc.) for a value-based rate. These grouped services also allow attorneys to provide different levels of service, depending on the complexity of the client’s finances and their specific estate planning goals.
One of the best things about creating package services for a specific, value-linked price, is that the attorney can put the client’s needs at the fore. What are the most valuable and necessary documents and services your target client needs? What can you add to the package to create more value for the price?
There are a number of benefits that come from using these fixed-rate models, rather than charging an hourly fee for work completed:
The client knows what to expect to pay up front. They can agree to a specific fee and there will be no surprises when the bill arrives.
By eliminating the element of surprise from the billing process, this limits the risk of a client refusing to pay.
Clients feel comfortable calling or following up with the attorney with questions or requests for clarification because they know they won’t be charged for a brief phone call. This allows for the client to be a part of the estate planning process and helps them understand what they are paying for. If the client is involved in and understands their estate planning process, they are more likely to continue working with their attorney over time.
A fixed-rate for a specific set of services builds a natural beginning and end of service into the client agreement. This eliminates any issue with the client asking for services to be included that are outside the scope of the client agreement.
A fixed-rate can set you apart and help ease any anxiety a client may have about working with an attorney. If the client has had a bad experience with an attorney’s hourly billing in the past, he or she may feel more comfortable with a fixed-rate model.
A fixed-rate allows you to build the cost of the whole estate planning process into your fee. This is more palatable to clients than sending monthly bills and it helps you ensure that you are making a consistent profit on each client engagement.
The fixed-rate model incentivizes efficiency, as opposed to the hourly-rate model, which provides the reverse incentive. Under a fixed-rate model, as your internal operations become more efficient and you gain experience, you will not be penalized for taking less time on each client’s service. This brings the client and the attorney’s goals into alignment - both you and your client want the work completed well, efficiently, and accurately the first time.
If you are just starting out, a flat rate will be less stressful. You won’t worry about overcharging your client while you take your time getting experience and efficiency.
A fixed-rate model also saves the time and cost of tracking hours, creating invoices, billing clients, and following up with clients when they don’t pay their bills (and spending time on the phone with clients explaining your bill).
Under the fixed-rate (flat-fee or value-based) model, you will be able to implement systems and workflows that improve efficiency and client service and that helps you create consistently high-quality results for your clients. Another thing we like about this model is that it changes the transaction: the client is not buying your time, but rather he or she is paying for your expertise and quality of service. However, we don’t mean to give the impression that fixed-rates need to be cheaper than hourly rates. Instead, the fixed-rate simply offers predictability and helps build trust between attorney and client. In the estate planning field, this trust and openness is necessary to create the desired result for your clients.
In support of an Hourly Rate
On the other hand, the hourly rate model is the most used system in the legal profession for a reason. Every individual’s legal needs are different, especially when it comes to estate planning. Because every client will require a different level of service that may take varying amounts of time, it may make more sense to charge hourly.
In support of the traditional hourly rate model:
Under an hourly rate model, the client pays for the actual amount of the services received, rather than paying for the average of services provided to all clients. Under a fixed-rate scheme, complex cases may end up under-charged while simple cases are overcharged.
The hourly model also makes sure that the attorney is paid for all of the work that he or she does. There is not necessarily the same motivation to throw services in for free.
Hourly services generally are drawn against a retainer. This allows the attorney to get paid at least a portion of the fee in advance.
Because the attorney only gets paid for work completed on a particular client’s case, there is incentive to work on each client’s matter regularly. There is an argument that the fixed-rate model incentivizes signing client agreements, but it doesn’t push attorneys to complete client matters in a timely fashion.
When a client is paying hourly, the services can be more tailored to the client’s needs. They will only pay for the documents that they need, rather than paying for a package of services that may not serve their goals.
There is an argument that because the fixed-rate model incentivizes efficiency, it may also sacrifice quality. Under an hourly model, the attorney takes as much time as is needed to make sure that the client service is performed accurately and completely.
Of course, whether you choose to use an hourly or a fixed-rate model will depend chiefly on what works for you and makes sense for your business. Many legal entrepreneurs choose to use a combination of the two models. For example, some attorneys will create a variety of estate planning packages using a fixed-rate model but provide probate administration services and more case-specific services on a hourly basis.
Setting your fee
Once you have decided how you want to charge clients, you will then need to decide on your price. Setting your fee can be stressful, but if you take it slowly and make sure to include all of the following factors, you will be able to come a fee structure that makes you feel comfortable and is right for your business.
Factor in your costs, including overhead, expenses, your hourly rate based on experience, and any time your staff is spending on client service (if you have employees). Think about future costs, as well. As your business grows, what new expenses will arise that you need to include in your calculation?
Remember when you are starting out that your costs might be relatively low. You may be tempted to set your prices low to attract new clients. However, once you set prices low, you are going to have a really hard time raising your prices as your overhead increases and you become more experienced.
A lot of clients have the attitude that you get what you pay for. Setting your rates too low may limit your attractiveness to your ideal client. Also, it is important that your prices distinguish you and your professional services from DIY and online estate planning. If legal services are too inexpensive, clients won’t think there is much of a difference between hiring a lawyer and using a DIY form online. DIY forms can have serious, damaging implications when people create estate plans without consulting an attorney with expertise in the area.
A good rule of thumb is to look at the prices of attorneys in your area. Don’t charge less than 20-30% less than an attorney in your area with 5-10 years of practice. You can also take a look at these hourly rate resources: Attorney’s Fee Laffey Matrix and the USAO Matrix. For setting fixed-rate prices, you can take a look at what other attorneys charge for legal service packages that are similar to yours.
Still Struggling to Decide What Is Best for Your Firm?
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