#157: How To Increase Your Legal Fees (Without Losing Clients)

[00:00:59] Well, hello, hello everybody. This is Heather Moulder, host of the Life & Law Podcast, and I’m excited to have you with me here today. So, as I said in the intro, we’re getting into a pretty tricky topic for most lawyers. How do you increase your legal fees without losing clients or work?

This is something that does come up quite a lot in my business coaching. Maybe you haven’t raised rates in a while, or maybe you did just this past year and you need to raise them again and you feel bad about doing it yet again, or bad about raising them in the first place because you haven’t in so long.

[00:01:36] And anytime you think about, okay, I need to do it, you almost break out into hives because it means having a very, very tough conversation with clients.

[00:01:48] Here’s the thing I want you to know.

You’re running a business, and it is not a real business if you’re not actually making money.

[00:01:56] Making money means paying your overhead, paying your employees, and paying yourself enough. And it also means having a profit.

[00:02:06] It’s not a real business if you’re just barely getting by, just barely taking in enough to pay all of the above without an actual profit. The fact that you are a service provider doesn’t change this. Yes, you’re here to provide clients with stellar legal service and to represent them. But guys, you also need to make money. And there’s nothing wrong with that.

So let’s just rip that band-aid right off and get right to it.

Here is my step-by-step process for how to increase your legal fees without losing work, without losing clients or making anybody upset.

Now, I will say sometimes clients still get upset. You can only do what you can do. But if you follow these steps it’s much less likely to happen. And even if it does, it’s going to go a little more smoothly. This is going to help you really get behind the rate increases, understand them more, communicate them better, and get to a place where everybody can be okay with it.

Doesn’t mean they’re going to love the fact that rates are raised, by the way, clients not being mad about it doesn’t mean they love it.

[00:03:11] And that’s something we often confuse a little bit. So be okay with that. Be okay that they may not love this, but they are still going to be understanding and you won’t lose anything for it if you’ve done it properly and they’re clients you really want to keep. Okay, so…

Step #1 For How To Increase Your Legal Fees Without Losing Clients: Get Behind Your Rates

You’ve got to be behind your new rates. Okay? Get behind your new rates. This is a mindset thing, kind of. I mean, you need to understand the data, you need to understand the background so that your mindset can be in the right place, because you’re not going to be able to communicate it properly if your mind isn’t there.

• What is the new rate?
• What makes sense and why are you raising it?

[00:03:59] Okay, now I’m going to go against the grain a little bit here. You do not need to raise rates every year. It doesn’t need to be an automatic thing. This is something that most bigger law firms, many law firms do automatically. And it’s something I’m not big on. Okay. Automatically raising rates every single year may not actually make business sense. So understand why.

[00:04:22] Maybe there is a good reason for it, but why? Answer that question. And if you are in a bigger firm and the firm is pushing you to raise your rates, you still need to gain understanding as to why. Because you’re the one who needs to communicate this, right? Why the need and why the specific rate they want to raise it to?

[00:04:41] Common reasons. Inflation, right? Expenses are going up. You’ve hired new people that provide better or more benefits to your clients that you have to pay. You’ve purchased new tech. Now, let me just note that hiring more people and purchasing tech isn’t an automatic for an increase in your rates.

[00:04:59] There needs to be a real and obvious benefit to your client for that increase.

Are you decreasing the amount of time on a file thanks to the new tech or providing that new service or that new person? Does the new hire bring more depth and breadth? Or maybe you’ve brought in somebody who can do more of the lower level work that once upon a time you were doing or somebody else was doing, that’s at a higher rate, and you couldn’t justify the higher rate for that work. So it was lower. And you need to raise those rates for those people, for that client, because now you have somebody more appropriate to do the work and you can justify your rate increase because you’re going to be more limited to that higher level work only.

So what’s the purpose behind the rate increase? You need to understand it. You need to believe in it.

My Personal Example

For example, about a year and a half ago, I raised my rates, and I raised my business rates pretty drastically. They’ve been the same since I’d started this business. They hadn’t raised at all. It had been a couple of years. And I realized not only was I below market, but I was getting my clients way too good a results. The value I was giving them was way more than what I was charging. And in fact, numerous people, including clients, told me I should be charging more. So that was a clear indication I needed to raise my rates.

Also, inflation was setting in. Things were getting more expensive for me and my family and my business, and so I had to raise rates as well. So that’s an example of when you would raise rates and understanding the why behind it so that you can explain to people why.

I had to have some tough conversations, because around that same time, I had clients who were about to renew and their rates were about to increase. So I needed to get behind the why. If you can’t be behind the why, you’re not going to explain it. 

The Question Not To Ask (& What To Ask Instead)

A quick note about how attorneys charge, something I used to do that I now know was a mistake back when I practiced law, and I did at the beginning of this business, even was, well, am I worth it? That’s actually not the best question to be asking, and it is certainly not the best first question to ask yourself. What you want to ask is:

• Is the product or service worth it?
• What are my clients getting and is that worth it? What is their benefit?
• What is the value of the service being provided that you are charging for, regardless of whether we are talking an hourly rate? And by the way, this applies to hourly rates. It also applies to packages or fixed fees. And when we raise those rates, it comes into play for any of these things.
• [00:07:47] What are you giving your clients? What’s that top end result? The legal work, the product, the service. What are you giving them then go beyond that. What else does that give them? What is that worth to them?
• How is it saving them time, energy, future money, how is it protecting them from future risk? What is the ripple effect of that?

Get really clear on that. This helps you get behind the rates.

Okay, now caveat to that, however: just because you may be saving them a ton does not mean, or a ton of potential risk that may or may not ever happen, does not mean you can charge the moon and above. Your legal fees and rates need to be realistic.

What is it worth to them, given the market, given that the market they are in, your perfect clients are in, based on what’s reasonable for them to be able to pay, to be willing to pay?

[00:08:42] So it’s important to ask these questions because it could be an indication that you’re targeting the wrong clients.

[00:08:49] For example, I have a client, current client of mine, who has been primarily representing startups, and she stays with them as they continue on. And then she can raise rates. Well, there are different rates for startups than there are for clients who are two and three years in and actually making real money. She can’t charge the same rates, so there’s a different pricing structure.

And in fact, over time she’s starting to move more into those clients that are no longer considered startups, that are making more money, that also need more GC-like services. They’re not ready to hire an internal GC, but they need somebody like her to be their GC. So that’s a different market than when she got started, only with startups. And she’s learning that she’s starting to transition more and more into that.

So her rate changes need to be aligned to that.

Okay, so get behind your rate. Understand the why, have the conversations you need to have. If you are in a bigger firm and you’re not the one who came up with the rate, make sure the rate is correct, the package is correct, the fees are correct, whatever it is we’re talking about, whether we’re talking about hourly or fixed fee or package. Okay, get behind it, know it. Now you can move into…

Step #2 For How To Increase Your Legal Fees: Communicate The Increase Professionally

[00:10:18] Communicate it. And you need to do this ahead of time, well ahead of time.

[00:10:24] So how do you communicate?

[00:10:27] I recommend having a conversation with your biggest and best clients for sure. I also recommend for those that you want to become bigger and better clients. Right. Your most important clients and the ones you’re really trying to grow and become better clients, you want to pick up that phone and have a conversation with them.

[00:10:46] How you define the ones that you need to have this conversation with can vary. It can be based on how many transactions or matters that you do on an annual or quarterly or six month basis. It could be somebody who tends to send you a lot of work every year or two that you may not have worked with in six to eight months. But they do tend to send you, like, work at least every year to year and a half. And it’s a lot of it. You may want to pick up that phone call, even though it might have been a while because they’re due to come in soon.

[00:11:16] It really is going to be defined by your practice area, by your type of clients, by how they hire you. But think through, like, who are my most important clients? Who do I need to pick up the phone and have a conversation with?

You need to have a conversation. It should not be through email. It should not be just through written, you know, letterhead or something that is too formal and not very personal. And this is a kind of a personal thing, right? So you want to pick up that phone and have an actual conversation.

Now, this is why you really do need to get behind your rates. That step one is so foundational, because when you pick up that phone and have that conversation, they may have questions, it may feel awkward. You need to be super behind your rate increase and why the increase to be able to explain it. And no, you do not have to get into the weeds about all the reasons why, nor should you. But you do need to be able to generally explain in a couple of sentences the reasoning behind your increase and how you got to that, especially if they ask some pointed questions.

Step #3 For How To Increase Your Legal Fees: Give a Clear Start Date

So this kind of gets to what I said when I started step two for make sure you communicated ahead of time. You need to have a very clear start date that’s not immediate.

So when you communicate the rate increase, you need to tell them the date that it will begin. Make it clear to them when it will begin, and pick a date that makes sense. 

For example: the first day of a month, the first day of a new quarter coming up, the first day of a year, those things make sense to people. Not mid month. Also not mid transaction.

Perhaps it’s for all new matters starting on a particular date, but for things that are ongoing, you would keep the old rate. It’s going to depend again on your practice, the engagement letter you have, et cetera. And what’s common in your industry.

[00:13:15] Make sure you give enough advance notice. Okay? Two weeks isn’t enough. Three weeks probably isn’t enough. A month may not be enough for some people. So think through each of your clients and what would they expect, given their intake process, given how they had, you know, their approvals? Are they going to have to go back and get approval for the rate increase? Are they going to need a new engagement letter? Are you going to need a new engagement letter? That might mean you actually need to give them more warning.

So I would say the rule of thumb, at minimum, is to give them a little over a month, somewhere between five and eight weeks. So, for example, maybe you have July 1 as a start date and it’s the end of April. That’s when I’m recording this, by the way. I know by the time you hear this, it’s way past that time. But I do have to record these ahead of time in blocks. So let’s say you plan to let them know the last week of it or, no, the first week of May for a July 1 start date. Okay? That’s plenty of time for most people.

[00:14:19] So give them a very clear starting date, be very clear how it’s going to work, and give them enough advance notice.

Step #4 For How To Increase Your Legal Fees: Follow Up With Written Communication

So after you talk, you do want to send an email and probably a letter within that email with a summary of everything you discussed, with everything in writing, what the rate increase is, how it will work, exactly when it will start, that type of thing. They must have something for their files. This is just professional courtesy. And it’s also CYA, right? That way, if there’s any misunderstanding between your conversation and what’s in there, they can get back to you.

[00:15:05] And again, you might need to update your engagement letter, depending on what it said, whether it covers these increases, also what their policy is. So if you need a new engagement letter, you’re going to want to do it then. So have that ready before you make that call so that you can send all of that to them. And I recommend sending it same day. If you call them and have a conversation, don’t wait a week before you send this. Send it the same day. At the latest, the next business day. Okay. Don’t go beyond that. It’s not professional, y’all.

Step #5: Be Prepared To Make Changes (Treat This As An Experiment)

[00:15:40] All right. Step five. Final step.

[00:15:43] This is also a mindset step, and it’s kind of infuses through everything, but it’s included as the last step because sometimes you might need to make some tweaks or changes. Okay.

[00:15:55] View it as an experiment. Ultimately, you never know how this will be treated, how others will view it, how it will be received until you do it. And hopefully, if you’ve gone through these other steps, especially that first step of get behind the why, understand the why, you won’t need to make changes.

But sometimes you will. Sometimes you will hear some counterarguments that you hadn’t even thought of and you go, you know what? You’re right. I’m going to lower it here or I’m going to do something to it.

[00:16:29] So don’t go in with this. This is it, no matter what. Okay? View it as an experiment. Take your conversations into consideration.

[00:16:41] Take into account who you want to be your clients. Take into account what you’re hearing as feedback for the market, view it as an experiment and treat that accordingly.

ll right, hopefully these tips will help you anytime you need to increase your legal fees to do so in a not just professional manner, but in a way that feels good to you and doesn’t lose you work, lose you good clients, and even allows your clients to be understanding. They may not love it, but they’ll be more understanding that you need to increase rates upon occasion.

So, as I mentioned at the outset, this is a topic that comes up in my coaching a lot, including within my business development mastermind, ELEVATE.

If you don’t know what ELEVATE is, it is a one of a kind group experience that’s designed to give you unyielding support, thoughtful guidance, structured accountability, and creative brainstorming so that you can take consistent strategic action to exponentially grow the business you want.

The waitlist to ELEVATE is now open. I only offer elevate once per year. Doors will reopen this fall, which y’all is going to be here before you know it. And joining the waitlist gives you early access, a payment plan bonus option, and a copy of my Client Development Blueprint right away. If this sounds at all interesting to you, I invite you to check it out and join the waitlist. I will put a link in the show notes.

That’s it for today. Bye for now.