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updated on 07 March 2023
QuestionHow do law firms price their work?
An age-old question for law firms is how to price legal work for new and existing clients and how to provide realistic fee proposals that are competitive but also accurately reflect the amount of work and time involved in a particular instruction. This boils down to the essential question of how to deliver the best value for the client.
The approach taken doesn’t have to be one-dimensional. There are many ways of scoping work that provides more choice for a client and aims to achieve value for money.
This is an area that can be difficult to grapple with for newly qualified legal professionals. There are, however, a number of useful techniques that you should be aware of when considering how to price work in a way that suits the individual client's requirements.
1. Taking a thorough and comprehensive approach to your scope of work
Being aware of your client's expectations on costs is an essential part of taking on a new instruction. It’s a good idea to have a conversation with your client about their long-term objectives as part of your initial conversation so you can provide a clear strategy on costs.
Setting out a comprehensive scope of work at the outset of a retainer can be a way of ensuring that you and your client are on the same page and that your client understands what stages of work are covered within the price quote you’re offering them. You may also want to confirm in the pricing scope whether disbursements (eg, court fees, counsel's fees and land registry fees) are included within the estimates given.
If a matter is particularly complicated or involves a lengthy process, you may want to take a stage-by-stage approach and give an idea of the timeline and cost position for each separate step.
Taking a predicative approach to likely costs going forward can be very helpful to a client in understanding the timescales and the likely costs involved in each part of the process.
This is likely to be particularly relevant for contentious matters involving court proceedings. These can be difficult to predict at the outset of the matter. By providing an idea of the costs for each stage of the process (eg, preparing witness evidence and attending a hearing), the client will be prepared in advance for what to expect going forwards.
2. Setting pricing assumptions at outset of retainer
Another way to ensure that you and your client are on the same page is by providing a clear set of pricing assumptions at the outset of the retainer. This is a good way of being very clear from the very start of your instructions on what work falls within and what falls outside the scope of your instructions.
Examples of such assumptions could include:
By setting these assumptions out clearly in writing, the client can be clear about what’s covered within the scope of your instructions. It also allows you the flexibility to have a further conversation with the client should the nature of the instructions change or more work be involved than initially envisaged.
It also can have a helpful effect in focussing both your and your clients' minds and setting some useful parameters on the scope of the instructions. This reduces the risk of costs spiralling without the individual client's awareness and you having to have a difficult conversation further down the line.
3. Best-case/worst-case scenario
The progression of many instructions can be affected by a number of matters outside of lawyers' control (eg, conduct of other parties, the need to complete additional documentation and time incurred in trying to settle a dispute through alternative dispute resolution). These aspects are likely to be largely unknown at the date when a lawyer is initially instructed. However, they do have to be accounted for in the initial pricing scope.
One way of approaching this is to follow a 'Goldilocks' formula of providing a set of different pricing ranges (eg, a 'best case', a 'likely' and a 'worst case') within your initial scoping proposal.
4. Alternative flexible ways of pricing
You may also want to consider alternative pricing structures as a way to provide more flexibility for your client and to cater the work to their individual circumstances. These options can include the following:
It may be helpful to look at two practical examples where taking the above approach may be beneficial.
You may have a client that already has considerable legal knowledge themselves or that’s previously received legal advice with which they’re satisfied. The client may be instructing you to action a specific, self-contained task such as drafting a statutory notice or property document. They may not require any legal advice on steps going forwards or on wider strategy.
This may be a suitable matter for considering with the client a 'bronze' level of service or for agreeing a fixed or capped fee.
On the other side of the spectrum, you may have a client that wants your considered general advice on the best way to proceed. This instruction may require research and detailed consideration of the legal merits and risks, and also of practical matters affecting the client.
You may therefore want to consider agreeing a 'silver' or 'gold' service to cover this work and any other matters on which the client may request further advice.
5. Update clients on costs
It’s important to keep a close monitor on costs and the client's long-term objectives as the matter proceeds and to be aware of how this compares against the estimates given in your initial conversations with the client. The client should be kept updated on a regular basis as to the current position.
Sarah Rhodes is a solicitor in the agriculture team at Michelmores LLP.