How to price legal services

Here’s a review of the main ways that law firms can charge for their services. Ideally the basis for charging should provide a win-win for firm and client.

So how do the main forms of charging typically get viewed from these two perspectives:

Method From a law firm perspective From the client perspective

Hourly rates

Great! But will you be able to charge all of it? Allows comparisons with other firms, but is increasingly seen as rewarding inefficiency and gives no indication of actual costs
Discounted hourly rates (for higher volume of work from client) Can lead to greater profitability, through higher utilisations Can be seen as better value, but above concerns still stand

Blended rates

Provides a perception of cheaper rates (particularly if client compares with partner rates from rival firms) Simplifies budgeting and reviewing, but concerns that the trainee will do all the work to offset lower margin

Fee estimate

Requires skill of ‘scoping’ the work (ie specifying what is included and what is excluded) and skill of project managing and renegotiating Still some risk that actual fees will be higher

Fixed fee

Biggest risk. May be appropriate to build in an override in the negotiation to allow for ‘substantial’ changes that could not have been predicted. Now we’re talking! Though may have concerns that quality of work may suffer if matter is over-running and law firm tries to avoid write-offs
Value billing  (client and law firm agree a fee after work is completed) Some upsides and downsides Encourages law firm to focus on delivering value. But some client find the negotiation uncomfortable and prefer greater certainty about fees at the outset
Conditional fees (no win – no fee) Payment only on result. Risky I like the sound of this!
Contingency fees (law firm gets a % uplift if successful) Similar to above, but less risky. Costs more than above, but may encourage a more rigorous approach
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