The Dilemma Over Legal Fees

Carolyn Elefant has written a couple of posts in the past few weeks that are good starting points for discussing fees and how lawyers determine fees. I'll be discussing them in this post and my next post.

The first was a post on My Shingle about competing on price. In that post, Carolyn contends that solos, and particularly new solos, need to compete on price in order to get their foot in the door. She says, "...what incentive does a client have to hire a new attorney unless he or she is charging a lower rate?"

There are lots of reasons clients change law firms, or choose lawyers, other than price. In fact, studies have shown that price is a relatively insignificant factor when it comes to choosing one firm over another. The lowest price doesn't always win. Many clients leave law firms because they feel the firms are not responsive enough, because the lawyer doesn't listen to what the client really wants, because the rapport just isn't there, because the lawyer wasn't forthcoming about problems with the case, because the lawyer failed to adequately explain the steps to the client and manage the client's expectations at the outset, and for a host of other reasons.

The lawyer/law firm-client relationship is just that - a relationship. If a solo can establish a rapport with a certain type of client or within a certain type of industry, build or demonstrate knowledge and, more important, trust, price shouldn't be a major factor in the decision.

A solo that can show that she is capable, listens to the client, focuses on the client's needs, and is responsive to client calls, requests, etc. can often outshine a larger law firm. Although clients often express dissatisfaction with their representation in terms of the fees that they're being charged, the real reason for their defection isn't the rate or fees themselves- it's that they don't feel they're getting value for their money, and they don't feel that their lawyer cares about them. Solos often are attractive to clients because clients feel they get more personal attention, and they're willing to pay for it.

Many dissatisfied clients stay with their current counsel because it's just to difficult or too time consuming to search for another lawyer, who may be just as bad or worse than their current counsel. But a solo (or any lawyer) who can get that client's attention and demonstrate the qualities the client is looking for in a lawyer is likely to earn some of that client's business. Then it's up to the lawyer to show how they can deliver.

The My Shingle post was prompted by an article in the Connecticut Tribune directed toward solos and advising that they shouldn't undercut their fees because discounting them devalues their services. Although I disagree with Elefant's position that solos need to compete on price, I don't necessarily agree with the Tribune article that the determining factor in setting fees should be the 'prevailing rate' in the area. Perhaps 'what the market will bear' is a better yardstick for determining fees (although Elefant disagrees here, too). But the definition of 'the market' is really the key. The market isn't defined by your competitors - it's defined by your target clients.

Every firm has a personality and has strengths that may be a 'fit' for a particular client or group of clients, regardless of the size of the firm. A particular solo may have expertise that no one else in the area - whether solo, small or large firm, can boast. A solo might have connections, experience or knowledge about a particular industry, business, or particular type of client. If a solo is able to position themselves in such a way that their offering is different than anyone else's, there is no 'prevailing rate' because there is no comparison between the services the solo is providing as against the services provided by another firm. They can be alone in the market.

One way a solo can stand alone might be in showing clients how to cut legal or other costs, without discounting the lawyer's fee. Solos are often able to keep up with technology and other innovations faster than larger firms, because larger firms have bureaucracy and layers of approval to be negotiated before changes in technology can be made. The costs of these changes are higher for larger firms due to sheer volume. A solo that can demonstrate advantages and savings to their clients can do so without lowering their fees. Ed Poll gets it right in his post, Don't Lower Your Fee - Fee Is Not The Issue when he says "the total cost of legal services is the relevant factor, not the per hour fee."

What's really important, as Poll says, is that you focus on what is really important to the client - and that you find out what that is in each case. Even with the same client, the values and expectations may differ with differnt matters.

All of this leads, for me, back to the problem of determining the appropriate method of setting fees, which will be the subject of my next post.