One issue that seems to arise frequently with my lawyer-clients and colleagues is whether it makes sense to discount your fees. Recently I attended a bar association meeting in which one lawyer suggested that with the recession coming, lawyers would almost be required to discount their fees in order to compete in the market and keep their business. I generally disagree with discounting unless there's a well thought-out strategic reason for doing so, and I've discussed my position on not discounting fees in a previous post entitled, "Should I discount my fees?".
Here's a real-life story to learn from:
One new attorney (A) reported on a lawyer list-serve that she received a call from an individual (B) and quoted A's regular hourly rate. B arrived for the initial consultation with two other people. Rather than seeking A's advice as an individual, B was seeking legal services as part of a corporation (C). A did the work at the originally quoted rate.
Later, C returned to A for more help. A again quoted a discounted rate, as A was a new attorney and was trying to get as much work as possible. In response, A received an email from C asking for a 10% discount because they were 'repeat customers' and because they 'planned to use A in the future.' A asked for advice about how to handle the situation.
When clients come to me with these kinds of issues, I usually start by asking questions. Questions I would ask A include:
- Did you tell C when they first came to you and you realized that it was a business matter as opposed to an individual client problem that the fee you quoted was not your business fee?
- Is C aware that the fee they received was already discounted?
If A hadn't told C either of the above, A needs to let them know now, whether A decides to further discount or not.
There are lots of things that go into the decision about whether to discount for a particular client, including whether they are otherwise good clients, what the potential for future business is, and whether they are likely to refer others to you. But keep in mind that as long as they think your 'regular' fee is the one they received (i.e. the already discounted fee), any matter they bring to you is going to be at a discount, and they may tell others that the refer what your rates are.
As you can see, you usually get yourself into a rut when you quote an 'already discounted' price. Here are some tips if you're going to discount for a strategic reason (which sometimes does have merit, as noted above):
- Make sure the client knows you're giving them a discount. For example, you could tell the client that you usually charge $xx for this service, but that since they are a repeat customer, you're going to charge them $yy. (keeing in mind that the client is likely still going to think that your 'real' fee is $yy, not $xx).
- Any bills or invoices should always reflect that a discount is being given, so that the client is reminded in writing that this isn't your regular fee. Discounting without informing the client is doubly shooting yourself in the foot, because the client thinks the discounted fee is your 'regular' fee. If you give in, you're doubly discounting.
- You could also agree to give a 'discount' if the client pays up front or pays within x days of receipt of the bill. The client gets a discount, but you get paid faster.
I'd also advise A to use this experience as a lesson about what to ask potential clients before you quote a fee, and about how to talk to clients about fees in general. It's one of the most difficult parts of being a business owner.
Other lawyers also responded to A's question, relating their own horror stories about clients. One lawyer responded, "I am always concerned about clients who ask for a discount after a meeting. Those clients are the same ones arguing about why they should pay for a 15 minute phone call or how much research time was taken, etc." Another says, "I learned time and again -- the people who give you trouble over your fee at the outset give you trouble when it's time to pay."
A third lawyer relates that their first client that wasn't a referral spent two hours talking to the lawyer at the initial meeting, following which the lawyer sent a proposal for a flat fee. The client immediately asked for a lower price. The lawyer (who notes that he ignored his 'better judgment'), gave in. That client turned out to be unreasonably demanding and the lawyer spent extra time working with him, hoping that it would be worth it for future work. But the client later asked for more discounts because the client felt he had done a lot of the work. End result? The lawyer fired the client. His advice? "Don't go there. It isn't worth it."
Finally, a lawyer related that when he began his practice, he did work for "dirt cheap: because he didn't have a lot of work. Some clients talked him down to extremely low prices. But those same clients, over 10 years later, think the lawyer will do the work for the same fees he charged back then. As I said above, once a client thinks you'll do work for a discounted fee, it's very difficult to get them (or those they refer) to pay your 'regular' fees.
Although clients that give you trouble about fees often give you headaches about almost everything else, if you didn't explain that you were already giving them a discount, they are only partially to blame. That being said, I'm a big believer in 'going with your gut' (see my earlier post about following your intutition) - if you've got a nagging feeling that this might be trouble, or an indicator of future trouble, stick to your guns, and if the client doesn't agree to pay your fee, be grateful that you didn't get stuck with a client that's a headache. Bad clients drive out good clients.
For more information about identifying good and bad clients and setting expectations, check out our upcoming teleseminar series, "How to Grow Your Law Practice on a Shoestring Budget," starting March 5, 2008. Early bird pricing ends February 15!
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