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 plans. In identifying costs for specific services, attorneys often disappoint what they must charge. When making their law firm marketing strategies, too numerous attorneys are afraid of even charging the competitive rate for their services. Further, they make the prices choices frequently with no information or conceptual structure. In addition, rather of focusing their efforts on how they can justify getting leading dollar for what they offer, they charge a cost that is frequently way too low and often actually can frighten off potential clients who believe there is something missing from a service that is " inexpensive". Additionally lots of lawyers don't realize that a lot of buyers in the marketplace by far are "value buyers" and not looking for "cheap".
Before you sit down and start thinking through your law practice management prices method you need some differences around pricing commonly used in law company marketing planning. Then add your prices technique to your law practice marketing plans. You need to be sure that you are charging a enough charge on everything to guarantee you a great earnings not simply a excellent living. Do understand a law practice management law practice marketing plan is not efficient if you just bring in individuals who want to pay the least expensive fee for a service. These are not faithful clients. Rather, you wish to focus your law practice management and law office marketing strategies on bring in customers who will end up being long term assets to the firm. Low cost customers are not building your base of long term clients I can promise you that.
There are basically 4 ways of determining just how much you need to be charging for your services. Lets move right into those now.
The Marketplace Approach In Law Practice Management Rates
This is one excellent way of figuring out prices. Get your assistant to support you in this law practice management task and spend a long time finding what the variety of rates remains in the neighborhood. Have her do a " secret consumer" research study by calling around as if he/she were a possible customer and discover out what your rivals state on the phone to her around pricing. She may need to call from her house phone to prevent caller ID. As another choice you might have him/her call other assistants or paralegals at your rivals and provide to exchange your fees for their charges or you might do that with other legal representatives yourself in your market. If you really wish to enter into it and have optimal information you can write possibly a few dozen rivals in your marketplace and state you are doing a cost study and if they would send you their cost list you will produce a composite list that does not identify those reacting and send them a copy of the outcomes. To keep it simple for them consist of a stamped, self-addressed envelope with a list of the most typical services provided in your practice area. Now you will see what individuals are charging for services similar to those you offer. You should have the ability to develop a variety of costs. Use this variety to set prices for your own services. My suggestion in law office marketing preparation is to charge at the 75% level of the list. You need to be at or in the top 25% of the charges.
Remember that in general it is not a good law practice management technique to compete on rate. The majority of potential clients will see prices that is too low as a signal that there is something missing either from the service, the service provider, or the firm.
The Cost Method in Law Practice Management Prices
This law practice management prices technique is really uncomplicated really. The most common error in law practice management using this technique is to overlook to consist of some kind of your expense.
In law practice management typically you count yourself out of the expenses and you ought to include site here yourself in the costs. Typically you are doing at least some of the management work. If you are all 3 of these in one, you ought to think about one salary as due you for your time and expertise as the service technician and manager as well as a earnings of fifteen to thirty percent due you as the owner.
Fixed Rate Method in Law Practice Management Pricing
This is the method utilized by many automobile mechanics (it is called "the flat rate book") and other company. This method is where you identify a set rate for numerous tasks and charge that rate no matter what. If the mechanic spends less time than allocated for the task, he makes more. He makes less if he invests more time than allotted. But in the end, everything evens out (well, normally to the mechanics' favor if you ask me). Another example using this method is how handled health care has actually used this system with doctors and healthcare facilities . Legal representatives can utilize this system if they desire.
The "Rule of 3" in Law Practice Management Pricing
This " guideline of thumb" called the "rule of three" utilized in law practice management is not what your CPA might tell you and it does not fail you either. Ask your CPA what they think of it and they will like it. To start we are going to be thinking in thirds. For the first third we will take the total quantity of salaries/bonuses (not benefits simply wages-- benefits go into the 2nd third following) for the profits generators and/or timekeepers (this includes you if you are generating income) and call that our very first 3rd. So accumulate the incomes of the legal representatives, paralegals, and legal secretaries who generate profits or are timekeepers and call this your very first 3rd (lets simply state that number was $100,000 to keep it basic). Whatever that number is take that number again and it is your second third which we will call your "overhead" (thus that second third is $100,000 and do not forget you if you are doing some handling partner type tasks because that part of your time goes here in overhead). Then take that 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 amount (in this example $300,000) and now determine how much you must charge per billable hour, per repaired rate or the number of contingency charge cases won to be sure you hit the target we must strike offered our very first 3rd number times three (in this example $300,000).
This approach reveals you how much per hour you need to charge. Given that you know how many billable hours each profits generator can do monthly, 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 strike your targets you will be guaranteed of a 15% to 30% net benefit from your operations. If you are the owner of the practice you deserve a fair earnings as well do not you agree? This approach is called the Rule of 3. If this technique is a bit too read this complicated do do not hesitate to call me and I will help you arrange it out in a couple of minutes on the phone.
It is a excellent concept to think through all of these rates methods in identifying your law practice management rates technique before setting a rate and moving ahead with a law firm marketing strategy to guarantee you are completely checking out all choices. Remember the tendency for the majority of legal representatives is to price too low. Don't do that! In another post I will tell you how to talk to possible clients so you never have a issue getting the charge you deserve.