When is a good time to raise rates?

In times of economic uncertainty, it can be tough to run a law firm. Your expenses can rise because of inflation, while fewer clients are coming through your door. It might seem like a bad time to raise fees, even if bringing in more revenue is necessary. 

You can raise rates even during an economic downturn. There’s still space for access to justice initiatives. You can even restructure how you charge for services so it provides more client value while improving your firm’s financial health. 

Why you might raise rates

Expenses for running your legal practice are likely to increase as inflation goes up. It makes sense, therefore, that you want to make up those costs with an increase in fees.

Some people in the legal industry advocate for an annual increase in rates. This helps maintain the health of the business of the law firm, so you can continue to offer quality services without worrying about your financial bottom line.

It’s possible to raise your rates in a way that complies with the American Bar Association (ABA)’s model rule on fees. The overall fee should be reasonable, even if it’s more than what you charged last year, and you must properly communicate the fee to clients.

Evaluate your pricing model

Before you choose whether to raise your rates, and by how much, assess how you’re currently charging for services. 

You might have a cost-first model, where you base your rates on your law firm costs and ensure you’re charging enough to make a profit. Competition-first means you’re basing your fees on what other firms charge, and make sure you cost less. Value-first means you base your fees on the value you give to clients.

One option, instead of simply changing your rates, is to change your model. If you’re currently working on a cost-first model, changing to value-first might allow you to bring in more revenue but also maintain client satisfaction.

You can also consider how you charge for services. Some areas of practice, like personal injury, are usually contingency-fee based. You might have a choice in other areas, however, between a fixed fee for a service, such as drafting a will or trust, or billing by the hour. 

By switching to a fixed fee, you might bring in more clients because of the rate certainty, which some clients might prefer over the uncertainty of how many hours your firm might bill. You might also be better able to predict your revenue with fixed rates, which can help with overall budgeting. A review of your billing practices can help you decide if you want to go in the opposite direction, switching from fixed fee to hourly rate.

Access to justice

You might also look at another issue when you’re weighing a possible rate increase: access to justice. Many people in the U.S. can’t afford legal representation, but it is in their best interest to get legal assistance. 

Some lawyers who care about access to justice might think a rate increase in tough economic times goes against their own moral compass, or runs against their reasons for becoming a lawyer in the first place.

There are a few ways you can resolve this issue, while sustaining the economic health of your law firm. One is to offer rates on a sliding scale, so those who are less able to afford your rates have the opportunity to pay less, while still getting the services they need.

Another is to offer some services pro bono. You might consider a set number of hours to work pro bono, such as 50 hours per year. You can devote these hours to a certain client, a nonprofit organization you want to support, or a legal clinic that serves members of vulnerable communities. 

Explaining your rate increase to clients

There are a few tips you can use to explain your rate changes to existing clients. This can help fulfill your duty of transparency, while also maintaining positive client communication.

• Give advance notice. Consider sending an email to your existing clients 1 to 3 months before the rate change takes effect. You can also send a paper notice if that is how you typically communicate with clients. 
• Tell them why. You can briefly outline why you’re raising rates. This need only be a sentence or two and should be honest. You can simply say, “due to rising overhead rates beyond our control,” or “increasing complexity of our fixed fee legal services.”
• Invite them to ask questions. State in the letter you are welcome to answer questions about the rate increase. 
• Emphasize their importance to the firm. Mention how much you value their status as your client. Indicate you might be able to provide options if the new fee structure is a barrier to obtaining your services. In a one-on-one discussion with a client, you might wish to offer a payment plan or a delay before the fee increase takes effect.

Bring more business into your practice with Martindale-Avvo

As you get set to reevaluate your billing practices, it’s also a good time to get more value from your marketing services. Check out how Martindale-Avvo can bring you qualified leads and upgrade your online presence. Learn what Martindale-Avvo offers today.