Alternatives to the Billable Hour

So welcome everyone to today's learning objectives from the Center for Practice Management of the North Carolina Bar Association. And we have two guests who are friends of mine, um, who volunteered to do this presentation for us today. Um, Jessica Bednarz is the Associate Director of Innovation and the Justice Entrepreneur Project at the Chicago Bar Foundation. And Lauren Lester is a solopreneur in Colorado, and they together are working on a, um, a project, which I hope they'll tell us a little bit more about called A Different Practice. I know that both of them, Lauren in her practice and Jessica working with the incubator attorneys, have focused on alternative billing and value-based billing and different ways you can do that and actually make money. I'm going to let them go ahead and get started. Thanks, ladies.

Absolutely. Thank you. Hi, everyone. We're excited to be here today. Um, and as we jump in here, I want us to take a trip first. I want everyone to think of your favorite destination somewhere far away, uh, and where you want to go and pack your bags. Uh, first, obviously, we're going to need to enlist the airline's help likely to help us get there. So we go to buy a plane ticket, and it seems as though they've changed things up. They give us the departure and our arrival location, so we know from where we're going to where we're going, the date of departure, and a scheduled time for the flight to take off. But then it says that they take $1,000 up front, which will be billed against as the flight goes on, and then anything beyond that we would have to pay an invoice at the end. So we think, okay, well, I guess this is how the airports are doing it now, and it's the only way we can get to our dream destination, so this is what we're going with. The day of our trip arrives, we wake up excited, we're ready to go, we pack our last few items, make our way to the airport. When we get there, we find out that the flight, the flight coming in has been delayed because of weather issues. So our scheduled departure time gets pushed back, but by how much, they're not really sure yet. And once the plane does arrive, there's a maintenance issue now that the crew needs to work on. Unfortunately, one of the airline's people called in sick, so they're trying to find someone else to help take care of that maintenance issue. We keep approaching the gate desk to kind of see like what's going on, how long is this going to take, but no one's there to communicate with us. We just can't get anyone to respond. Finally, after all this waiting, we get on the plane. Woohoo! Our ticket doesn't have a seat number and no one doesn't say anything about seating, so we figure we'll just pick this seat that we want. Luckily, one of the first few rows is still open, which has some extra legroom, so we grabbed that. Settled in. Once our flight takes off, our phone automatically connects to the Wi-Fi. So we're like, great, we're going to enjoy some streaming, we're going to watch our favorite movie. And while we're watching, the flight attendant comes around right as we expect and asks us if we want anything to drink. So we order a hot tea. It's getting a little bit late, so we feel like we might doze off soon, and that's kind of a good drink of choice. And just as we close our eyes, we feel some turbulence, and the captain comes on and saying, oh, we've got more weather issues, we're going to have to divert the flight for a little bit until the weather passes. So now we go somewhere else, we land, we wait on the plane, the plane has to be refueled, and then we take off again. Finally, we get to our dream location. This has been such a whirlwind flight. We jump out of our seat because we just can't wait to get off this freaking plane and rush towards the door. But as we approach, the captain comes out and hands us a piece of paper. It's an invoice for this flight, and it says Thanks, your $1,000 deposit was used up, but that was used up while we were sitting at the airport way back in the beginning waiting for the plane to arrive because of that weather delay. And then they had to bring in a special maintenance person because the guy who called out, right, wasn't there. And the only guy they could find was this special guy and his rate is much higher and it took longer to fix the issue than they thought. When we got on the plane, Thanks for choosing your seat, but we chose one that had an extra cost because of the legroom. We streamed Wi-Fi, so we're going to get charged for those hours that we use that service. And then we're going to have to pay for the cost of the tea that we ordered. And because the flight had to be diverted and took twice as long to arrive at the destination, we're going to have to pay for that extra time too. So here's your invoice with an outstanding balance of $3,000. Please pay upon receipt. Anyone going to pay that bill? Probably none of us is my guess. And the airlines, of course, is going to argue that, well, they did what we asked them to do, right? You wanted to get to this dream destination. We got you there. So here's the bill for getting there. But for us, the way we think about it is, well, that pricing was really opaque, right? Like, in no idea did you give us an idea that it was going to cost $4,000 in total. We thought the $1,000 would probably cover it. Had we had known what the total cost would be, we may have made a different decision. And even if maybe we didn't, maybe $4,000 was what we were willing to pay to get to our dream destination. We would have liked to know that upfront. We would have liked to have the autonomy to make that decision upfront, knowing the full price, not kind of being forced into it at the end when we really don't have another choice. If this sounds familiar to anyone, it's— there's a reason, right? This is exactly how traditional legal professionals approach pricing with customers. And if it sounds like it would be a terrible experience on the airline, you're absolutely right.

We agree.

So today we're going to talk about how we can change that and give our consumers a much better experience. I'll hand it over to you, Jess.

Okay, so if you— we want to— we have a couple quick polls in this presentation, and we're using an app called Slido. So if you do have your cell phone, this should work with a computer screen. If you just hold it up and press on the link, it should bring up our first question. It's on the next slide. I don't have Slido pulled up on my end, Lauren.

You're good. Sorry.

It's okay. So what we would love to know first is what is your biggest pricing challenge as of today? And you have a couple options to pick from and you might say, oh wow, all of them, but maybe just pick the one that is most pressing in this moment. Are things populating?

It doesn't look like—

Oh, someone said they don't see the options. Catherine said, hmm, maybe it didn't.

Interesting.

Okay. Well, we can switch.

Yeah, let's do it manual.

Sorry everyone. So instead, maybe just think whatever comes to your head, pop it in the chat. And I know not everyone can see the chat, so we can just read it out.

So some things you might think about your biggest pricing challenge, maybe it's that clients aren't paying you. A lot of folks say that they're worried that price, their prices might be undervalued, like they're not getting the amount that they're worth. Maybe you feel like you're not making enough money, um, or what you would like to be making. So let us know what you're—

yeah. Or maybe you just don't even know how to get started. Sounds overwhelming. We're providing accurate estimates. That's definitely a good one. Anyone else have anything? Okay, I think people are still thinking about it, and that's all right. But then the second question is, how would things look differently a year from now if you found a solution to those problems? Oh, so another one came in, difficult to forecast time involved to know value of my work and services. Yep, that totally makes sense. Kind of identifying those variables and the effort that would go along with it in each case. So in those situations, if you were able to learn how to do that, how would things look differently for you? Would that mean you'd be able to offer these set fees and then have to worry about less about tracking time? Would you have to spend more administrative or less administrative time tracking time and maybe you could spend that time with loved ones? Or would you be making more money so you can go on that vacation you've been dreaming about for a long time? Feel free to pop those answers in the chat as well. And these are the things that we're going to focus on today. Hopefully we're going to— by the end of this presentation, you'll have a good framework so that if you aren't already doing this and you want to move to value-based pricing, or you've started and you just need a little help, hopefully that's going to move you in that direction. Client education takes time. There's some good stuff coming in the chat. Absolutely, I agree with all these things. Um, all right. So before we lay out the framework, and we do have one, and we think that's gonna be helpful for all of you and provide a lot of clarity and a place to get started, we just wanna debunk, um, 5 myths that we have come across as we've talked with solo and small firm attorneys about value-based pricing. The first myth is that the billable hour is the way that things have always been done. So I don't know about you, but I believed this, um, when I started practicing a little over 10 years ago today. I actually opened a practice right out of law school. And of course I also then had to figure out how do I price my services? And I had a mentor and she said, well, you know, it's the billable hour rate. And she also happened to be a family law attorney. That's what I was going into. And she's like, well, I charge this much an hour. You know, I've been doing this for 20 years, so you probably should just discount it since you're brand new. And when I asked other people, they said the same thing. They're like, well, you should, you know, ask other family law attorneys and then discount based on your experience. So it was kind of like this, ask the attorney down the street and then discount pricing strategy, which is one, you know, I've never seen before. And I was a business major and it just seemed a little bit odd. So, but you know, that's what everyone said you were supposed to do. So I thought it was the way that things had always been done, but it turns out that is actually not the case. And so if you go to the next slide, we're not gonna watch this video today. We don't have time. It's about 30 minutes, but it gives a history of the billable hour. And it turns out that, The billable hour is actually relatively new, and back in the day, set fees were actually the norm, um, and we moved away from that for various reasons. But the point being is that it can actually be done. So I would encourage you to go back later when you have 30 minutes and watch this video because it's really interesting. Myth number 2 is billing by the hour is the only way to be profitable. So two quick fallacies here. One is that basically we're saying that there's no other way to be profitable, but we know that's not true. If for no other reason, Lauren is profitable and she has never billed by the hour. We also have a lot of attorneys in our incubator program, same thing. And there are also larger litigation law firms like Bartlett Beck that also do not bill by the hour and they are very profitable. So that myth has been debunked. Also that billing by the hour itself is profitable. And while that might be true for some of the bigger law firms, We know from the Clio Trends Report that that's by and large not the case for solo and small firms. So Clio is a law practice management software company. If you have not checked out their annual Clio Trends Report, it's definitely worth a scan. You just Google it, it'll come up and it's free. It offers some really interesting data on client trends. And some of the information they shared had to do with utilization rates, realization rates, and collection rates. And that's where this number comes from. So if you look at the study, you'll see that on average lawyers, their utilization rate's 2.64 hours. So that means in an 8-hour day, which let's face it, very few of us work only 8 hours, but let's assume 8 hours. That means that lawyers are only doing revenue-generating work 2.64 of those hours. Then when you take it to the realization rate, and realization means the amount of money that's actually billed and invoiced to clients. So this is after you are, you know, writing stuff off for whatever reason, the number drops to 2. 3, and then when you factor in the collection rate, which is not 100%, um, the number drops to 2.1, which means on average lawyers who bill by the hour realize and collect only 2.1 hours out of every single day. You don't have to be a math major to figure out that even with a high hourly rate, which is going to price a lot of people out of the market, you might not be covering your costs. You're not actually running a profitable business. And one of the great things about value-based pricing or set fee pricing, which you'll see later in the presentation is that you're going to have a better opportunity of having 100% correct collection rate and collecting on 100% of the work you do and not writing anything off. Myth number 3, alternative billing is not ethical. On occasion, some people have questions about that, which is good. You know, we all want to follow the ethics rules for sure, and they just aren't sure. So we just want to let everyone know that alternative fee arrangements are ethical under the ethics rules. The standard is Rule 1.5, and it just says that fees must be reasonable. And then it doesn't— it gives some factors, but it doesn't say they have to be billed in any certain way. They don't have to be billed by the hour. They don't have to be offered through a set rate or fee structure. They leave it up to the attorney to decide that. We will mention that, you know, if you're offering contingency fees, for example, maybe there's some additional requirements you need to adhere to. Also, in some states, like in Colorado, for example, If you're offering flat fees, you have to include certain things in your engagement agreement, and you have to have a written engagement agreement. So in this area, we're just pointing out that you may just want to read the rules and make sure you're aware of any other requirements, but you can— it is ethical to offer set fees. This is the one we get the most often, myth number 4, there are too many variables. And our— Lauren's opening story hopefully highlights this one. So, yes, we, we understand that every case is different. We understand that a lot of cases are complex. There are a lot of variables to take into account. But the point here is, just like the airline industry that has over 60 variables to take into account, it is possible to identify those variables and factor them into your pricing. And so the good news is, if you go to the next slide, is that the data is there. Right? In the airline industry, the data is there. In the legal industry, the data is there. You probably already have the data if you've been practicing for even just a year. Basically, what you need to look— do is kind of look back at the cases you've handled thus far. And if you're thinking right now, oh, I'm actually new to the profession or new to a practice area, this is a great time to pair up with a mentor. Just find someone else who's actually practiced in this area of law for at least a couple of years, and they're going to be able to help you with this exercise. So if you go to the next slide. So it's just all about identifying and taming the variables. A good way to do this visually as you're thinking through it is to use a process map, which is a visual tool. If you just think maybe of a decision tree, that's kind of what we're talking about here. And what you want to do is you want to look back at the different categories of cases that you handle and what variables could potentially come up in those cases. And then we're going to talk about later different approaches for handling those variables. So basically the key point here is just identifying them, which you should be able to do if you have practice experience, and then we can find ways to account for them. Myth number 5, flat fees will lead to a race to the bottom. We don't think this is going to happen for a couple of reasons, but what we hear, especially you'll learn later, we're going to encourage you once you have your pricing menu to share it with people, maybe on your website. So sometimes we hear people get a little nervous like, oh, if I put my price on my website, then the attorney down the street is going to charge a little bit less. And then a little bit less, and eventually we're at the bottom and we're all out of business. Well, we don't think that's going to happen for a couple reasons. First, if you think back to the last time you made a slightly bigger purchase for a product or a service, you may have had a budget in your mind. That's oftentimes how I work through the process. But then it's usually just a range, it's your budget, and you quickly are moving on to the other things that are of value to you. And oftentimes those things are equally important and sometimes even more important than the price itself. So the point What we're seeing is that while the price is likely a factor in the decision-making process, it's not the only factor. And we'll also add to that, at some point you can only charge a certain amount and then you're going to go out of business. So just naturally, the profession would reach a floor and it would be fine. We just don't see this happening. We haven't seen this played out despite some people's reservations. And then, so ultimately what we're asking everyone to do, oh, I'm sorry, I'm a little ahead of myself. Just a few quick other problems we want to note. Hopefully this is already obvious, but the billable hour lacks transparency and predictability. So the average legal consumer has a budget. They only have so much money to dedicate to solving their legal problem. And if they don't have a fixed fee, they can't understand whether they have enough money and they're not in a position to write a blank check. The billable hour also creates an inherent conflict of interest So most people, not all, but most people want to resolve their legal issues as quickly as possible, right? That is their goal, or that's one of their goals. But if you're billing by the hour, that's not helpful to you cuz the faster you resolve the matter, that's less work that you can bill and less money that you can generate. Also, the more expert you get in something and the quicker you do something and resolve a matter also works against you. So it's kind of this weird inherent conflict that just sits there that you would not have if you were instead tying your service to value, which kind of ties into the next one. If you're tying your services to time, obviously there are only 24 hours in a day. You're working with a fixed pie. But if you're tying your services to value, and we're going to talk a little more here in a second about what value is, it just leaves so much more room for growth. The sky really is the limit, and you can be very creative about how you deliver and price your services. And that's a whole separate presentation. And then finally, Living your life in 6-minute increments just really wreaks havoc on your well-being. You don't want to walk through your life, both in the office and outside of the office, thinking about time all the time. It's just not a healthy thing. And at this point, you can find several articles on it. There are others who agree. All right, this is where I was going. So what we're asking for you to do before we get into the framework is just take a minute and kind of step back and think about your mindset when it comes to pricing. So traditionally in the legal profession, we're on the left. We're typically as lawyers first thinking about our firm and our costs. You know, what, how much money do we need to bring in to pay the bills at the end of the day and to have enough money for our personal lives? And hopefully we're then adding a profit margin to that. But I'm not sure a lot of lawyers are doing that. And then at the end of the day, we're signing a price based off of that. But if you— as you can see, at no point in time are we thinking about the customer and the legal consumer. What is it that they really value? Where are they in the process? And we believe instead you should have the process on the right, which is more of a value-based process. We want to start with the legal consumer and work backwards when we're pricing and honestly just designing legal services more generally. So here's what we're gonna ask you to do, and this is the framework we're gonna walk you through. We're instead asking you to determine, or first think about, who is your ideal client? If you could just work with this client every day, all day, who is that? What is it that they ultimately value? And then based off of that, we want you to put a price on the value. And I know that sounds super vague, and we're gonna talk more about it here in a second. Um, But again, we want to tie value more to our pricing, more to what legal consumers value. And then in step 3, don't worry, we're going to make sure that you are putting together a budget and thinking about the amount of effort that is going to have to be put in to deliver the service so that you cover your costs, but not only cover your costs, we also want you to be profitable. And so we're going to now talk about the framework. Lauren.

Wonderful. Uh, let's turn my video back on here. So as Jess was saying, What we do as lawyers is solve problems and provide value, and we provide the value through solving those problems. And so we really want to think about what is the value we provide, not what is the time that we spend, because no client is ever paying for our time. So one of the great tools that's out there, if— because value is such a squishy thing to get our hands around often, is this elements of value pyramid that Bain and Company put together after doing a ton of research across all different industries and really narrowing down, um, and identifying what is the value that consumers are purchasing. And so if you're really at a loss of like, well, I'm not even sure what value is or how it would apply to my law firm, this is a great place to start. And so you can see some of these, um, they're broken up by different categories. This, um, tracks with kind of Maslow's hierarchy of needs, um, template. So down at the bottom are just functional values, right? Do we save our clients' time? Most likely, yes. Right? Them going through the legal process on their own is going to take a heck of a lot longer than them coming to us and us helping them through it. Right? So saving time is a functional value, simplifying the process, reducing risk, right? No matter what practice area you're in, what you're doing for a particular client, my guess is 9.5 times out of 10, you're reducing some sort of risk for them. And that might look different in different practice areas, right? A, consumer debt attorney is going to reduce the risk of the liability exposure for their client, whereas a small business attorney is going to reduce the risk by putting an operating agreement in place, right? So it's still reducing risk, it just takes on different forms. So once we get up from functional, we get to the emotional, right? So probably reducing anxiety. I don't think most folks want to have a touch point with the legal system. And so having someone there who's in their corner, who's guiding them, who's telling them what their options are, right, it's just going to reduce anxiety. And, you know, there are things in the value pyramid that you may not think of, but that may be able— they give you a kind of creativity jolt. Like, can we make working with lawyers fun? Which is never a word I hear associated with attorneys, but it is a value that clients can and do value, right? So it may not work if you are in probate, right? Fun may not be kind of the first word that comes to mind, but maybe if you're in small business and you're working with small business, is there a way you can just make the process a little bit more fun, a little bit more entertaining, create a funny video or send out, you know, a funny meme to your clients about something about business, right? Just making it fun. And so that is something that clients will value and will differentiate you from other firms. So as we keep going up in the pyramid where we have life-changing, you know, providing hope to clients is something they're really gonna value. Um, giving them an affiliation and a belonging. This really, um, comes if you think of immigration attorneys, right? They really are providing their clients hope, giving them the affiliation of being, um, a member of our country, um, and however that will look. And then obviously at the top of social impact, which you can get to, um, you know, not in every practice area, but again, if you're working on with small businesses and they are building a business that's going to have have a social impact, right? You're a part of that process. So the elements of value period is a really great place to start and it's going to work from top to bottom or excuse me, from bottom to top. And so social impact isn't any better than functional, but you do need the ones below it before you can kind of get to the higher items. So other things that clients are going to value is transparency and certainty when it comes to price, right? We saw this with our airplane example. We would have felt very frustrated, annoyed, angry if we got that invoice because we had no idea that that's what the cost was going to be. And consumers want the autonomy to make decisions upfront when they have transparent and predictable pricing. Consumers also value customer service, right? We value this everywhere that we are a customer, whether it's a coffee shop or working with a realtor or getting our oil changed, right? We want good customer service. So So thinking about is your firm providing good, great, or even exceptional customer service, that's going to make a difference and clients are really going to value that. And then third, they value choice. Whether that's from the services that they can choose from, they don't want a one-size-fits-all package, or from something as simple as being able to pay by a payment plan versus upfront. Clients want the option to be able to choose, um, when it comes to their legal services. So one of the areas that there's a huge gap and why we are so passionate about providing alternative predictable value-based fees in law firms is really this is a smart business decision. In the latest Clio Legal Trends Report, they found that clients prefer to pay flat fees at a rate of 67% to 33%, right? So almost two-thirds to one-third. But when you looked at But law firms that were actually offering those set fees, it was the exact opposite, right? There was only 37% who were even offering that as a solution. So there's a huge gap there, and that gap really is an opportunity, um, as a business person running your law firm, being able to provide this type of choice to clients that they can have flat, predictable, value-based fees is going to set you apart and really skyrocket your business. So the reason we talk so much about value and that we always start from it is no matter what anybody is buying, this goes for ourselves and for our clients, it's always going to be an emotional decision to purchase that we will then justify after the fact. And how you get to touch on that emotion is by focusing on the value that you're providing, not on the time you're spending or the, you know, outcome percentage. I mean, people will use that after the fact, but really how you make that connection where they will part with their money is always going going to be based on emotion. So we don't have time, just kind of in the interest of time, but we do want you to take some time later today and really think about what's the value you provide through your law firm and the different services that you offer to clients, right? Are you reducing anxiety? Are you making the process simpler? Are you saving them time or money? Are you giving them hope? Are you giving them a family heirloom? Go through that pyramid and we'll provide this deck and think about what it is that your firm does so you can start communicating that to your potential clients. So value-based pricing has benefits, a ton for the client, but also for us, right? We don't wanna sell our time. We wanna sell our value, have more control over our practice, increase revenue, get 100% collection rate, upfront payments, less admin time, less stress. So let's jump into the process of how we do this. Before you really dive in, there are some fundamentals that need to be in place that just kind of touched on. One is you've gotta know your target market and what they want. You've gotta be able to define the problem that you solve for clients really clearly, and they have to be familiar with your practice area. So there's ways to, um, work at this if you aren't there yet, right? Get a mentor, do some research, do the work ahead of time. But once you have these fundamentals in place, you can jump into the process. All of this process is outlined in detail at our pricing toolkit, which is free. It's over 100 pages. You can grab it at thepricingtoolkit.com. It also has a worksheet to work you through the process. So just gonna throw this out there, we're gonna go through it. Relatively quickly today just because of our time constraints, but do know you can dive in with a very big deep dive with our toolkit. So our first step is going to be obviously to determine the value, right? That's where we're always starting. So we want to start by creating a list of all of the services that you provide clients through your law firm, and this can be from completing an entire case all the way down to just a single step of that particular case, right? So it could be just drafting one document or doing the entire custody case through mediation. So we're going to use the example just from a family law place, not because this only works with family law, which we hear a lot and we firmly believe that that is not the case, but just because if even if you're not a family attorney, you can sort of understand the steps that would be needed in a family law case. So it helps, you use as an example. So we want to go ahead and create a list of our services and then we're going to take each of those services through this 4-part, this 4-part process. So I'm going to use this example here of going through a custody case through mediation with a client. So that's the service that we're going to focus on just so y'all can see how this works once it's applied in real life. So the second thing we want to do is think about the value we provide by offering that service to someone. All right. So some of the examples here with our custody case, right, we might provide information by just answering the client's questions and explaining to them the process and what their rights are. We're gonna give them peace of mind because their kids are gonna be, their interests are gonna be advocated for. We're gonna reduce their risk by helping them stay out of court because they don't want a judge making decisions about their kids. They wanna make those decisions, right? So we go through and identify all the value that we provide. We're gonna go ahead and put that on our worksheet. So then we also want to think about the value that we provide just from the customer service experience of our law firm. And that is, right, can— is it easy to schedule consultations or meetings with us? Do we have hours outside of 9 to 5? Do we offer payment plans, right? Just because they work with our firm and how we're set up, do we offer value through that? So we want to do customer service value as well. So we're just piling on the value here for our particular service. Then we want to account for the variables, everybody's favorite part. So we want to first identify the variables, right? So this is what it might look like for our custody case. You know, what's the level of disagreement between the parties? Are they like relatively on the same page versus they can't agree on, you know, what day it is, right? That's going to be very different in terms of what's needed for that particular case. Whether there's an opposing counsel can make a big difference, right? How much communication time the client's going to require. And then just in terms of the process, right? Is there an opportunity or a potential for temporary orders or protection order or a court-appointed investigator, right? All the things that could happen, but don't necessarily happen absolutely in every case. We want to go ahead and list all of those out so that we know what we're looking at and what variables could change the effort that's going to be required. And then we want to take a, a look at, okay, how are we going to account for those variables? We have 3 approaches here. We can limit the scope and say, We're going to include this list of tasks, and if something happens that's outside of that, that's going to be outside of the scope, and we go back to the client and talk about, you know, extending the representation or increasing the scope. I have never had a client, when this is explained well, ever give me pushback. They totally understand that was in the scope, the other side filed so-and-so motion that wasn't included, that's going to be an addition, and the client can choose at that point what they want to do. You can also take the approach of including a risk premium, which is going to take the cost of a particular variable happening, like let's say a temporary orders hearing, which could happen, might not happen, and taking it across all of the cases that come in and want that service of helping them through a custody case. So we sort of spread it across everybody. If they don't need it, no worries, they pay the flat fee. If they do need it, it's going to be covered. They won't have an additional cost. The airlines take this approach when they give us fees for our flights. So that's how they, they include all their variables. And then the third option, if you have someone who comes in and it's just really hard to get your arms around the case, there's a lot going on, you really need to dig in more to feel better about what the variables are, what the likelihood of them happening is, is just to do an exploratory initial phase with the client. Give them the value by giving them their options, their strengths and weaknesses, right? Where you think they're at. Clients get a lot of value out of that, but then you will have a better sense of what's needed so you can give them them a more accurate estimate going forward into their case. So here are 3 scenarios because variables are not going to work in silos. They're all going to kind of happen for everyone who walks in. So these are 3 different clients who might come into your office if you had a family law firm, and these are how the variables kind of play out together. So scenario number 1, client walks in, there's no opposing counsel. They basically have a parenting plan in place that they're working out in real life. They just need it down in writing so it's memorialize. Second potential client comes in, right? These parents aren't speaking. She's really not sure where the other parent is. They don't really have a schedule, right? The other parent kind of pops in and out when they feel like. And this particular client is feeling really uneasy and you get the sense that she's just gonna need a little extra handholding through the case. We don't know if there's gonna be an opposing counsel 'cause we don't know much about the other party. Third client comes in, right? These are the opposite sides of the field.

Folks.

They can't agree on anything, right? They have an existing plan, but it's not working. They're unlikely to reach an agreement. This is likely going to need to go to a contested hearing, and you already know the opposing counsel and they have a reputation for being litigious, right? So that's how the variables might look for different clients who come in. So for each of those cases, we're going to approach the variables by limiting the scope. With our folks who just need it in writing, we'll do the standard steps, and if something comes up, we can go back to that. For the folks who you want to just kind of hope for the best, plan for the worst, we're going to do a risk premium because there's a likelihood they may need a hearing. We're going to bake that into the cost. And then the opposite sides of the field, we really need to get a better handle on it, and so we're going to do an exploratory phase there first to really get a better decision on what's needed. You also want to determine the fee arrangements. These are pretty straightforward. Most folks are familiar with these, right? Is it going to be a flat fee? Are you going to do it in a tier? Is there a subscription if it's ongoing work? So just deciding exactly how the payment will be made will be helpful for the client to know as well. And so for each of our examples, we're just going to do a flat fee because it makes the most sense. These aren't cases that kind of go on or that need work long into the future where maybe a subscription would be a better fit. So we're going to do a flat fee here. All right. So now we want to take our information. We've got a good sense of our service, the value, how we're going to provide it to the client, how we're going to take care of the variables. We want to do some market research. Start by just looking around for others in the space, right? Are there any other law firms similar to yours that are offering any sort of pricing or any sort of sense of what their services include? Is there anything legal consumers can use in terms of like a referral service that kind of matches up with your space and what's available there and what are their options there? And does the court in your state offer any kind of self-help help, free form, something, you know, it's good to know about that because if that's one of the values you also provide, you know, the client is going to go, well, I could get it for free over here, or I can pay for it, right? You just got to be aware of what's out there that the client's also looking at. And then you want to talk with friends, family, and colleagues, right? Talk to potential clients who come in. Talk to the lady behind you in Starbucks. Talk to friends and family and say, hey, if you needed help with a custody case getting you through mediation, right? Here's all of the value you would get, reduced risk, peace of mind, right? All those things that we did. And it would be a flat fee for the full piece. If anything kind of came up outside of that, it would be additional. What would you pay? And ask them and start gathering feedback from there about what the cost would be.

So I know that might be scary, but think about everything that Lauren just talked about, all the feedback that you've gotten for others. If you've talked to clients, if you've talked to people in the Starbucks line, whoever it is, and just see if you can put a number on that price. And it's okay, this is just an initial price. We're going to come back and tie a little bit more to it. So, but I'm sure when Lauren was talking about the different examples, a price came to your mind, and that's what you want to do. So even if you can't, take the information that you've collected elsewhere. You know, you can always just take off your lawyer hat, try to put yourself in your ideal potential client's shoes, think about if you were to explain all of the value to them, what price would you pay for what you just outlined? And that is your initial price. You just put it out there to your, you know, to yourself, write it down, but just, just that's what you're gonna start with. And so we did that for all of the different services that we just walked through here. So if you can see at the bottom, the initial price that we have put But for the first scenario, need it in writing, we've decided that $3,500 would be a fair price based off all of that value. And again, this is just an initial price, right? This is just what we came up with. Your number when you were thinking through that might have been different, and that's totally fine. For the second scenario, hope for the best, that's where we're going to use that risk premium and the flat fee. We thought a good initial price for that would be $5,250.. And then opposite sides of the field, just again that exploratory phase, we thought an appropriate flat fee for that phase would be $1,500. So those are our initial prices for those 3 scenarios.

All right, thanks, Jess. Hopefully you all can hear me again. Yes.

Oh, and I'm sorry, I didn't go through the risk premium part for number 2. How we came up with that?

Yeah, so a risk premium, this is kind of what it looks like. So we had our base fee that we saw with scenario number 1, right? $3,500 is kind of where our market research landed us. But for Hope for the Best, remember, we were going to do a risk premium. And so how that works is we want to take a look at what is the cost for the trial that could happen. So we've gone through the same process and we decide that that's $5,000 to hit the value for that, but it happens 35% of the time in our cases. So when we do $5,000 times 35%, there's a $1,750 risk premium that's going to be applied to that base price, which gives us that $5,250 for that hope for the best scenario, so that if we have a trial, no worries, they've already paid for it, we've got it baked in. But in the next, you know, 4 that are going to come in, um, don't need a trial, but they're also going to pay the $1,750. And so we're going to make sure that we get that value, the cost for that value, but it's not going to be too much of a burden on the particular client who needs it. So it kind of pushes it out over everybody. Okay, so identifying the target revenue, step 3. So this is where, you know, now that we've figured out what clients, what number they put on the value, we're going to go back and look at our firm and make sure that it's going to work for our firm. So we have to identify our target revenue. We're going to do this by looking at all of our costs, our operating costs, including employee compensation, and then obviously your salary, right? And what you need to make versus what you want to make. And obviously Uncle Sam's going to get his portion. So don't forget about taxes. So we're going to do this on a monthly basis. You can do this however you want, but this is what it might look like look like for your particular law firm, right? These are generally made-up numbers, but it should look something like this, right? You should know your operating costs and then also your salary. So then when we know those numbers, we don't want to forget about profit, right? Because when you're a business that every dollar that comes in goes out or is allocated for either an expense or your salary, right, you don't really have a healthy business. It's a little bit of a paycheck to paycheck. So we want to bake in profit. We recommend between 5% and 10% is a good place to start. If you want to go crazy, go crazy. But that— the profit calculation would look something like this, which is taking the expenses, $1,500, about $8,000 in salary that we calculated. So $9,500 times 5%. We want to make sure that every month we bring in about another $500 in just plus profit kind of baked on top. So once we have all of these numbers, that's our target revenue, right? It's operating costs plus the salary, which includes taxes baked in there, and then profit. So for this law firm example that we're using here, it's about $10,000 a month is what the target revenue is to keep the lights on, to pay the attorney, and to have some profit. So now let's take that number and see how it's going to work with the value the client assigns. And the way we do this is look at the effort that we need to put in to complete this particular service. So here's where process mapping comes super handy, which is you can go through and map out everything that's possible that's needed to do to, uh, actually execute this particular service. Remember, for us in our example, we're talking about that custody case through mediation. Right? We're going to go through and say, you know, where do we need to send emails? Where do we need to call someone? Where do we need to draft something? Where do we need to contact the court? What needs to happen first? What's, you know, step 6? So this is a very simple process map. This next one is probably more likely what yours is going to look at when you look at everything that's involved in delivering legal services, right? It can be pretty complicated and involved, but the purpose of this is, is for you to have a 10,000-foot view to go, okay, this is what I need to put in to actually execute this service. So you have a good sense of the effort you need to exert to actually deliver the service. So we like to put our efforts into 3 buckets just to kind of categorize them. And these are going to be individual to you, right? So when I look at the 10,000-foot view of a process map, if there's a lot of court time, if there's a lot of contact with opposing counsel, right? If there's a lot of email drafting, for me, that might take a lot of effort, right? This is, we're not just talking about time here. We're talking about mental, emotional, physical effort, right? Is there a lot of travel involved? Whereas for Jess, you know, she may look at that savings, that process map, and go, oh my God, emails, opposing counsel, court, man, that's the easy stuff. That doesn't take a lot of effort from me. So this is going to be an individualized process, but you want to go ahead and put them into different buckets, right? Small, medium, and large, just to be able to kind of categorize. So for our 3 scenarios that came in, this is, as you might expect, what it might look like, right? Need it in writing, small amount of effort, kind kind of just going through the normal flow. Medium, hope for the best, right? We don't— we're not quite sure, but there is a little bit more involved. And then certainly the opposite sides of the field, folks, right? There's going to be a lot of effort that's involved in that for us. So when we take those effort assignments, we're going to take that bottom portion of our example and kind of expand it out a little bit. But we're back on our example here, and we want to go through and, and say for those, okay, for the folks who need it in writing, we're dealing with the variables by limiting the scope, we're doing a flat fee, the client assigned a value for everything we're delivering to them, all the value we're providing of a number of 3,500. What's the amount of those cases we could take in a month if that's all we did, given our small amount of effort, right? We put that in the small effort bucket. So we say, you know what, we could do 5 of those a month. That feels good for how much we wanna work, right? How much we are, are, are wanna do in our practice. And so if we take our target revenue, which was that $10,000 number, and we divide it by 5, that means we'd have to sell those at just under $2,000 a month. Well, that's fantastic because the client is willing to pay $3,500 because they put a value or a number on the value at $3,500. So every time you were to sell one of those, you're actually making an extra $1,500 in profit. That's a fantastic place to be. Nothing needs to change there. Go ahead and sell your custody case through mediation. Limit the scope for folks who just need it in writing at $3,500. Now, it's not always going to happen. In that nicely. Obviously, we did these numbers for our example to illuminate the process, right? But you might run into, like, our opposite sides of the field example here, right, where the client was only putting a $1,500 value on what we were providing by doing that exploratory phase. And when we figure out that that's actually going to be a high amount of effort, or, you know, for, for that process, or maybe we can do 6 of those a month we're actually gonna lose money because we have to sell them at about $1,700 and the client's only willing to pay $1,500. So there's a couple options you can do there. One is, can you increase the value? Go back and see, maybe there's some things that you forgot. Maybe there's value you can easily add by doing FAQs or videos or something, right? Maybe, um, it's something what, you know, it's just a loss leader because it's an exploratory phase. It gets the client in the door. You build a reputation, you build trust with them, and you know that you know, 8 times out of 10 they go on to add phases because they need more help. And all of those phases, you've done this process and you're in the green for those. You may decide that you can do it quicker. So maybe instead of 6 per month, maybe you can increase it to 8 per month because you include some automation in your process, or you use technology to just make things go faster, right? So now your numbers are going to work out. The thing you cannot do and is very easy to, but you're gonna slip back into that cost-based mindset, is to just say, well, I need to sell it for $1,700 for my business, and so I'm just gonna make the value $1,700, right? That's a very lawyer-centered, egotistical way of providing pricing because you're not focusing on the client. The client is only willing to pay $1,500 for whatever you're providing. And so if any of those levers don't work work. You just may decide that this is not a service that you can provide right now until something else changes, which is also okay. I've made that decision many times too. But this is the way that, you know, you can pull those levers to make it work for your business. Woo.

All right. That was a lot. We are to the home stretch. All right. Now that you have this amazing pricing menu, cause you worked through the framework, we want you to share it with people. Um, obviously share it with your clients. A great place to do that is on your website. And you might be like, oh my God, the whole pricing menu. You don't need to put the whole pricing menu on your website. What we're suggesting here is to start really small and just put any information on your website. What we find is that the average legal consumer just honestly has no idea how much legal, legal services cost. So even if you can just start with, but like a range, even if it's a wide one, some sort of ballpark or even like a starting at $1,500, that is, you know, that's starting to give them at least some information so they're not completely shocked potentially when they come into your office and you give them a price. So, you know, start freely, share freely, go slowly. You can always add and change things on your website. Most people are not coming to your website every day, so they will not notice if you make a change. That's okay. And then obviously this is a process. You're going to be working on this for a long time, especially as you start out. You should probably be conducting a review every 3 months. And here's what you want to be looking at. You want to be collecting both qualitative and quantitative data to assess how things are going. And so an example of qualitative data would be in a client survey at the end of the matter. If you ask someone the simple question of how did the value you received align with the price that you paid? And you can give them 3 options. It was a steal, it was spot on, or it was a little expensive. And depending on what feedback you get, you can start to understand, do I, how do I, do I need to adjust my pricing? And if yes, what changes do I need to potentially make? We also wanna make sure that you are tracking the effort. And so we are going to suggest that you do track your time in some fashion, definitely not in 6-minute increments. An hour is okay. Even a half day is probably fine. We just want you to have some sense of how much effort you're actually putting in and how that compared to how much you thought you were going to be putting in, and so that you know whether or not you need to be making some tweaks. I'll also mention here that if you're doing fee-shifting work, or maybe you have to file a petition for fees, things like that, I know I have seen in Illinois judges that require you to show time records. So having some of these basic time records are going to help you in that way. To. Um, and remember it's an average, especially when you're starting out, right? Like you're going to experiment and as you start to do things, only get better and better in a lot of situations. So as you're reviewing, if you see an outlier, you know, keep an eye on it, think through, you know, why was that so off, but don't necessarily like get rid of that service right away. Just kind of keep an eye on it. And as long as on a portfolio basis, you're coming out ahead and profitable for your firm, that's what's most important. Just a couple quick tips. You could put this really great pricing menu and strategy together, but you also need to pair it with some good client screening, scoping, and setting expectations. You can't have this menu and just take anyone who walks in the door. It's just not going to work. You're gonna start experiencing a lot of problems, and they're probably going to have more to do with the screening than it is with your pricing, but you're probably gonna get frustrated with your pricing and then resort back to the billable hours. So I just want to flag these things. We recommend coming up, like, thinking through again who's your ideal client, your ideal case. What are the cases that you don't want to take? What are the types of clients you don't want to take? Maybe list those out and have those, you know, bulleted next to you during your consultation so you don't feel like, oh, maybe, you know, you feel like you might need a little more money this month, so I'm just going to take that client even though it's a different type of practice area. Don't do that. It's just not worth it. It. There's an opportunity cost to all of that. And, um, I can't tell you how many times attorneys have said, you know, I knew when I talked to that client, it wasn't a good fit, but I went ahead and did it anyway. And man, I paid for it. So don't do that. Try to set those guidelines and stick to them as best as you can. Try to set expectations before, during, and after the consultation. So specifically with respect to fees, again, if you can put some pricing information on your website, then people are already going to have an understanding of what that ballpark is before they walk in the door. And you might be like, well, I mean, maybe that turns some people away. It's turning away the people who aren't going to hire you anyway. So don't, don't have that concern. But if you can be thoughtful about how you can set expectations along the way, that's just going to help you greatly. And then always just scoping out what is it that people really want and how can you deliver that to them. And if you can offer more than one option, As we talked about, just offering options provides value to someone. So if you can offer full rep and maybe an unbundled service of some sort, that's really helpful to people. All right. And then obviously we want you to put it all in writing. 100% of your engagement agreements really do need to be in writing. Not just because it helps set expectations for— The relationship is— I don't— I mean, 8th grade, I know we have 8-year-old nephew here, that might be a little low. But point being is it needs to be very plain language for a middle school reading level, like the entire engagement agreement. People need to understand what they're agreeing to. You need to be really specific with the scope, especially if you're limiting the scope in any particular way, and the CVF has a great resource on limited scope representation. It has an engagement agreement in it. So just really pay attention to the scope clause. I don't think you can ever be too specific, honestly, if you're limiting scope. Milestones— we mentioned this earlier. Um, it's not required in a lot of states, but it's a, it's a best practice if you can list out your set— how your set fee is earned over the case. Like maybe 50% of it is earned once you get to mediation, and then another 25% once you get to this stage, and then once you get to trial, it's 100%. The reason that's helpful is that if for some reason you end the representation prematurely, it's a great way to figure out what you might need to refund to the client. You want to include any assumptions that you're making, so don't just talk about those assumptions, actually put them in the engagement agreement. So for example, I don't know, in a child support matter, we're assuming that you only have 2 kids and that a 3rd one isn't going to materialize at some point. You might want to put that in the engagement agreement because your pricing is based on that. You want to include a right to renegotiate clause. So this is just simply, you know, this is the fee and this is what you are going to get, but things change from time to time, and if they do, we are going to come back together and we are going to negotiate a new price.

Setting guardrails.

So if you are offering a subscription fee, for example, and it includes communication, you might want to outline how much communication. Can people just call you up all the time and talk to you, or is it only, you know, a couple hours a month of communication? And how do they do that? Do they schedule something with you on your website or can they just call you and expect to get you on the phone? So just thinking through that and outlining that in your, in your agreement. And that kind of goes with expectations too. A lot of times people, each of us have expectations, but we don't put it in writing and sometimes we're not on the same page. So if you can just put more of it in writing, I think that ends up working out better. Collecting money. Hopefully your answer to this question is 100%. You want to collect money on all the work that you did, right? And we truly do think that with, set fees, you have a better opportunity to do that when you're offering that set fee up front. Refunds, you're going to have to give them if you do end the service, you know, end the relationship prematurely. Again, milestones is kind of a good way to figure out how much you will need to refund to the client. But it's also good to include provisions about how that will be done in your engagement agreement. Okay, so I know that was a lot. This is where we are. Maybe take a second to think about what is one thing you can do today. It could be really small. It might just be putting on your to-do list, revisiting this presentation to work through this new framework. As, as Katherine said at the beginning, Lauren and I have a business called A Different Practice. So we do offer additional services. Pricing Toolkit is free. You can go to the website and get it. We also have a video version of it. So if you're just sick of reading, you can actually just watch some videos. It's the same content. Content. We have a Pricing Paradise subscription, so if you want to take a deeper dive into some of the more challenging topics like variables, we have some videos there. We also have some engagement agreement templates. We have a live Q&A every month and email support where we can help you work through your pricing challenges. And then we have strategy sessions and some other consulting services. Again, if you want to take a deeper dive, those are available. You want to chat, we are always happy to do it.. We love talking about pricing. We are nerds like that. Um, so if you want to do it, please do reach out to us.