As part of determining the pricing method you wish to use to set your fees, you need to consider the available pricing options. There are various ways to charge for your your legal services – hourly, contingent fee, fixed rate, or some alternative structure. The type of pricing appropriate for your practice will depend on a number of factors, including, the field in which you practice, the nature of the client’s case, and the client’s request for alternatives, if any. This article discusses hourly pricing.
Hourly rates are commonly used in the legal world to price legal services. The law firm model is generally based on the billable hour, that is, attorneys are accountable for, and charge clients, in one-sixth of an hour increments.
This system has been much maligned in recent years as outdated and inefficient. Despite the criticism, however, the practice continues as the standard for many law firms.
How Do You Set Your Hourly Rate?
To begin the process of setting your hourly rate, you can compute the overall cost of running your practice and divide that amount by the number of projected or actual annual billable hours. This figure will give you a starting point upon which you can base your hourly rate. For an in-depth look at setting hourly rates in firms with multiple attorneys, see ABA's Law Practice Today article, Pricing Legal Services, by Ward Bower.
Other factors that will affect your hourly rate:
- Years of Experience: Partners with many years of experience will obviously have higher hourly rates than associates. As associates gain experience, it may be appropriate to raise their hourly rate.
- Geographic Market: The standard rate for an attorney will depend on the market in which they practice. Consult a mentor or colleagues in your field to gain insight into what other attorneys are charging.
- Type of Case: A more complicated or niche area of law may justify a higher hourly rate.
- Industry Standard: What other attorneys in the same type of practice are charging will likely be a consideration for what is appropriate for you to charge.
- Type of Client: To land a client that offers a volume of cases, offering a discounted rate may be appropriate.
A fee survey conducted by the National Consumer Law Center also includes such factors as firm size, reputation, advertising, and personal relationships with clients. An Altman Weil study cited in Mr. Bower's article concluded that specialty is the most influential factor on setting an hourly rate.
When Does Hourly Billing Make Sense?
When faced with a choice between hourly rates and some other form of pricing, charging clients by the hour is a fairly straight forward option, though not without it drawbacks, particularly in terms of the lack of incentive for efficiency. However, it may be the most approptiate billing strategy when the matter has many unknown factors and variables.
When Hourly Billing May Not Be Appropriate
Depending on the types of cases you will be representing, hourly may not be the best fit for you. Some cases, such as plaintiff personal injury matters, are frequently handled on a contingency or percentage basis. The client may be unable to pay an hourly rate and the attorney takes on the risk of the case, with the expectation that there will be a settlement or damages award.
An Altman Weil survey, 2015 Lawyers in Transition, also notes that 81.3% of law firms surveyed see non-hourly billing as a permanent trend (see pg. 69). Of the firms that do offer non-hourly billing options, 68% of them are doing so in response to client requests (see pg. 66).
Retainer fees are often used in conjunction with hourly billing to provide the attorney with security of payment, as the cost of hourly fees earned is deducted from the retainer fee. Requiring this type of retainer is allowed provided any unused portion is returned at the end of the representation. The amount of the retainer will depend on the type of case being undertaken, and the type of client.
Above all else, attorney fees must be reasonable and comply with your state's rules on fee arrangements. With regard to hourly billing, ABA Model Rule 1.5, Comment 5 specifically admonishes that attorneys not use "wasteful procedures."