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Discounting Legal Fees Sends the Wrong Message

Discounting Legal Fees Sends the Wrong Message

Note:  The following is a guest post by Ann Guinn.

If you are one of the many attorneys who regularly discount fees, you are causing yourself to underearn –and sending the wrong message to your clients.

Sure, there are times when a discount is the right thing to do; but chronic discounting is a different story entirely.

Let’s consider an attorney client of mine, we’ll call him Roger (not his real name).

Roger’s timesheets were an ode to the art of timekeeping. He captured every single minute of every day.

His timesheet would show:

8:10-8:17 a.m.                        Read and responded to e-mail from client Brown

8:17-8:19 a.m.                        Got coffee

8:19-8:23 a.m.                        Called opposing counsel; left message

8:23-8:29 a.m.                        Looked out window

You’d think if anyone could actually bill for all time worked, it would be Roger. But a review of his client bills showed a different story.

You see, Roger routinely discounted every single line item on a client bill by 30-35%. Not the total of the bill— every individual entry.

When asked why he did this, Roger replied, “I guess I just don’t see the value of my work.”

Roger was sending his clients a clear message: He didn’t think his work was worth what he intended to charge, and he believed he took way too long to complete the tasks. Why else would he discount every bit of his time?

Is that the message Roger wanted to convey to his clients? Probably not, but that’s the message they were receiving from his heavily discounted bills.

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PriceValue to Clients

Many attorneys discount a client’s bill before it’s even sent, simply because they believe the client will be unhappy with the fees being charged.

The client is never given the opportunity to complain, and conversely, the opportunity to accept the bill with gratitude for great service provided.

The thing is you can’t ever know for sure what’s going on in a client’s mind. The letter that you wrote on behalf of your client may have been a no-brainer for you; however, if it resolved a problem, the value of that letter may be very high to the client.

You’re focused on the money, but your client may be looking at value received. Those two viewpoints rarely intersect.

When Discounts May Be Justified—To a Point

Now, if a good client complains about your bill, you need to decide whether or not the complaint is valid. Then, use your best judgment on whether or not to discount.

If you want to preserve the relationship, then a discount of some sort may be the prudent thing to do; however, do it thoughtfully.

If you make discounting a regular practice, then you’re setting client up to expect a discount every time. (And, they’ll tell anyone they refer to you that you’ll buckle under if they just complain about the bill.)

If you choose to discount your bill, ask the client what he/she believes would be a fair fee for the value of the work performed [Note: “value,” not the time involved].

One of my clients chose to discount a bill by 20% for a client who complained, only to have the client say, “Wow, that’s great. I was only expecting a 5% discount!”

But before you decide to discount, please consider the following.

This table demonstrates how much harder you’ll have to work to maintain the same gross profit after a discount:

THE IMPACT OF A FEE DISCOUNT

RATE DISCOUNT

(% increase in revenues needed to maintain the same gross profit after a discount)

GROSS MARGIN

AMOUNT OF DISCOUNT 35% 40% 45% 50% 55% 60%
5% 16.67% 14.29% 12.50% 11.11% 10.00% 9.09%
10% 40.00% 33.33% 28.57% 25.00% 22.22% 20.00%
15% 75.00% 60.00% 50.00% 42.86% 37.50% 33.33%
20% 133.33% 100.00% 80.00% 66.67% 57.14% 50.00%
[Excerpted with permission from Minding Your Own Business: The Solo and Small Firm Lawyer’s Guide to a Profitable Practice, by Ann M. Guinn (ABA 2010).

If all of your clients complain about your bills, one of three things is happening:

(1) You’re charging too much,

(2) You failed to demonstrate the value of your work in your billing statement and various other communications, or

(3) You’re accepting the wrong clients.

The only fiscally-responsible solution is to find the problem and fix it. You can’t afford not to.

Aren’t you worth it?

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Ann Guinn is a practice management consultant to solo and small firm lawyers and frequent contributor to ABA publications.  Readers can connect with Ms. Guinn on LinkedIn.

Photo credit:  Flickr via Creative Commons; CC 2.0

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Infographic Friday: Billing Rates Up 4%, But So Are Discounts 

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About Dave Honaker

Dave Honaker
Dave Honaker joined LexisNexis in 2011 and currently serves as an eMarketing Specialist for the Business of Law Software Solutions group. His career has been focused on the targeted communication of thoughts and ideas for advertising and marketing firms, lobbying groups, and motion picture production companies from New York to Washington, D.C. As a current member of the LexisNexis Firm Manager® team, he has helped rebuild the product from the ground up with input from solo and small-firm attorneys around the country to best serve their needs. He holds a Bachelor’s Degree in Journalism and Public Relations from Radford University.