I am currently in the process of writing an article on Client Intake which will appear before the end of the year in the Pennsylvania Bar News. But due to a recent exchange of posts on the PBA Solo & Small Firm Section listserv, I wanted to take a moment to address just one aspect of this process: Initial Consultation Fees.
Should you charge initial consultation fees? What impact will they have, if any, on client intake and retention? If you charge an initial consultation fee, will the client walk to another attorney down the street? Does it make any difference if the prospective client comes through another attorney or valued referral source?
When I perform a practice management audit at a firm, there are some questions which always get asked. Among them are three which are relevant here:
1. do you have a lot of free time on your hands, or generally more work than you can handle?
2. what is your “closing rate” on converting prospects to clients?
3. do you charge an initial consultation fee?
Let’s examine the relevance of each of these questions.
First, if you have free time on your hands, then you need to spend it wisely. That means developing and implementing a marketing plan first and foremost, and spending time focusing on enhancing practice management issues so that you can operate more efficiently once your marketing efforts pay off. On the other hand, if you have more work than you can handle, it’s time for other actions, which may include any or all of the following:
* raising your rates
* firing some unprofitable or undesirable clients
* improving your intake screening techniques of prospects
Second, you need to know the closing / conversion rate on converting prospective clients to real clients. Remember, in the absence of solid data, you cannot make good business decisions. Only by monitoring the effect of your actions on your conversion rate can you determine if your actions are producing the desired result. For example, if you are overwhelmed with work, you should be thinking seriously about raising your rates. If your prospect to client conversion closing rate remains unaffected, then you have probably not raised your rates for new clients enough. If your conversion rate drops dramatically, (you want it to drop slightly so that you have less work which is more profitable), then perhaps you’ve increased the rates too far. By benchmarking your rates against survey data for similar firms in your geographic and practice area you may be able to determine if you are pricing yourself out of the market.
Many of you are squeamish about raising your rates. But you should not be. Here is a quote from an attorney which I believe may strike a nerve with many of you, “I used to be quite nervous about the money part, but this past January I even raised my fees for the first time in 7 years of solo practice and nobody, not one client, flinched.” My rule of thumb is that you can and should change/increase your rates for new incoming clients whenever you have more work than you can handle. And keep doing so until you start to see some easing of the conversion rate.
Even if you don’t have more work than you can handle, 7 years is just too long to wait to raise rates! That’s like taking a cut in rate each year. It’s likely not about the rate, folks, that’s causing you to be bereft of clients, it’s about what you’re doing to bring the work in the door, and to keep those clients coming back for more, or turning them into good referral sources.
There is no rule that states that if you bring in a new client at a higher rate, you have to apply that rate to all existing clients.
The frequency and perhaps even percentage of rate increases for existing clients will be determined by the Engagement Agreement. If you have overlooked including language in there which permits you to increase your rates once each year (excluding flat fee or contingent-basis work), you need to do so. Rule of thumb, bring clients up to the current rate at least every 24 months, but not less than 12 months. Thirty to sixty days of advance notice is sufficient warning before implementing a rate change.
Third, and what prompted me to write this post in the first place, is about the initial consultation fee. As my grandmother used to say, don’t expect to sell your milk if you give away the cow for free. (Or something like that!) There are a ton of seemingly genuine prospects out there who are really just looking to pick your brain for free. Don’t allow it, not even under the guise of wanting to show how helpful and valuable you will be. Not unless it’s a former client wondering if the matter at hand is worth pursuing. And maybe not even then.
Getting back to those practice management audits, I repeatedly find that attorneys invest an enormous number of unpaid hours over the course of the year on initial consultations which lead nowhere. Yes, sometimes the attorney declines to take on the representation. That’s a good thing. But the lion’s share of the time the prospect disappears into the vapor from whence they came, armed with whatever free information you provided.
My recommendation to these attorneys, and to you, is to always charge an initial consultation fee, and to set a time limit on the initial meeting. Depending on the type of matter, one initial meeting may require two hours, but another only one. Set your initial consultation fee based on a percentage of your regular rate (I usually recommend somewhere in the range of 100% to 200%) times the amount of time you will allocate, and quote it as a flat fee. Insist that payment be made before or at the beginning of the initial consultation.
If you want, you can provide the prospect with a credit on their first bill for the amount paid during the initial consultation once they become a client. In this way you can still provide a free initial consultation, with the caveat that it is free only for those who ultimately become clients.
Charging the initial consultation fee will eliminate all those “fishing” for free information. And if you have a referral source who sends lots of “bad” referrals with the occassional “good”, it will gracefully do the weeding for you without embarassing or discouraging your referral source.
One participant on the listserv noted that her conversion rate is very low as of late, because “. . .these folks are looking for extremely cheap legal services. They are happy to pay the consultation fee but are somehow under the delusion that my overall fee for their services will be close to the initial consultation fee.” A good way to avoid this is to make sure your initial consultation fee is reflective of your “real” rates, or quote your hourly rate in advance of the initial consultation meeting. On the other hand, if you receive fair compensation for the initial consultation meeting, treat the prospect with care, demonstrate your expertise, and then lose them over the rate, you may still wind up getting work from them on another matter in the future when the stakes are higher, or they may pass your name on to someone else with the caveat, “I couldn’t afford her for what I wanted, but I was very impressed with her.”
Don’t try to get your work by underbidding your fellow attorneys. Don’t sell yourself too cheap. And don’t be afraid to ask the going rate. Keep track of your prospect to client conversion rate. Make sure you have built rate flexibility into your Engagement Agreement. And always keep in mind that you never know who will become or refer your next “best” client.