Many law firms fear raising their prices because they worry they’ll lose business. While that can happen, undercharging will cost you far more in the long term than losing a few clients.
Raising your rates can be done. In fact, it has to be done—to keep up with inflation, retain talent, expand your team, and invest in technology. But it pays to be smart about it. A little tact and sensitivity can more than make up for an increase in rates, allowing you to run your firm smoothly while maintaining an excellent relationship with your clients.
Know Your Worth
If you’re feeling queasy about raising your rates, remember that people are willing to pay more for things they really need—and if they’re hiring you, it’s because they need a good lawyer. If you’re saving your clients money, protecting their reputation, keeping them out of prison, or simply giving them peace of mind, the amount you charge per hour is probably less important to them than knowing they can trust you and rely on you.
Understanding your value to your clients and knowing what differentiates your firm from others in your area can help you get over your doubts and take the plunge.
When to Raise Your Rates
When you need to keep the lights on (i.e., always)
If you don’t regularly raise your rates, your profitability will decline over time. That means lower raises, fewer opportunities to hire talent, and fewer investments in infrastructure. You owe it to your team to understand what it costs to keep your firm running and take the steps to ensure that you’ll be profitable over the long term.
When you’re getting referrals based on your low, low prices
If other lawyers refer clients to you who can’t or won’t pay their rates, it’s a clear sign that it’s time to raise your own. The market will bear higher rates, and you want your reputation to be based on your excellent work, not your budget pricing.
When you have more business than you can handle
What a good problem to have! Assuming you don’t want to expand your practice right now, it’s a no-brainer to increase your rates. Yes, you may lose a few clients, but you’ll end up making the same or more money for less work.
How to Raise Your Rates
It’s a lot easier for clients to accept an annual increase of 3-6% (the industry standard) than a double-digit jump every few years. However, even annual increases may not be sufficient if you weren’t charging enough in the first place or if you’re facing large expenses, such as expanding.
If you want (or need) to raise your prices, how do you do it without alienating prospective clients or upsetting current ones?
Know the rules
First, do your research and determine your jurisdiction’s rules for setting and raising rates. You may be required to give clients a certain amount of notice and inform them in writing that you are raising your rates (which you should do anyway).
Let the market guide your prices, not control them
There’s tremendous value in knowing what other firms in your area are charging for similar services, but that doesn’t mean you have to charge the same—and it certainly doesn’t mean you should charge less! In fact, bargain-basement pricing may signal low quality to prospective clients.
Taking the value you provide your clients and your unique positioning into consideration, use other firms’ rates as guidelines, not gospel.
You don’t need to raise all your prices for all your clients at the same time. You can ease into it by offering prospective clients your new rates and seeing how they respond. Move on to letting your smaller existing clients know that future projects will be charged at your new rates. Finally, roll out your new prices to your biggest, most important clients.
Communication Is Key
Regardless of how, when, or why you raise your rates, it’s vital that you communicate clearly with your clients, ideally well in advance. Sixty days is usually sufficient, perhaps more for your corporate clients, who may set their annual budgets months in advance.
While it’s crucial to communicate rate changes in writing to all your clients, it’s worth telling your most important clients in person, or at least on the phone, first. Finally, keep it simple. Lengthy explanations may sound defensive or uncertain and invite argument or negotiation.
Remember, your clients are paying for the value you provide, and most expect that over time, your prices, like everyone’s, will go up. Communicating your rate increases with honesty and transparency will smooth over any ruffled feathers while ensuring a long and prosperous future for your firm.
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