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Competing On Price – Why Not?

by Carolyn Elefant on June 4, 2006 · 10 comments

in Business Models, Marketing & Making Money, Setting and Collecting Fees

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Most marketing gurus counsel lawyers not to compete on price.  So I wasn’t surprised to see that advice at the core of this article by Susan Cartier-Liebel, To Solos:  Don’t Discount Your Worth, Connecticut Law Tribune (June 5, 2006).  Personally, I disagree.  I see no way for a new solos to get a foot in the door except if they compete on price, and no way for former biglaw-turned-ownlaw attorneys to wrest cases from their old colleagues unless they include price as a selling point.

When I say compete on price, I’m not suggesting that you setbargain basement rates like this solo
(though he’s certainly carved out a niche) or that you try to make up
in volume what you’re losing on cost.  But if the prevailing rate for a
divorce attorney in your area is $250 an hour and you’re a new
attorney, why not charge $175 an hour (@ 30 percent less)?  And in fact, what
incentive does a client have to hire a new attorney unless he or she is charging a lower rate?

Cartier-Liebel suggests that if you don’t convey that you’re worth the
same as other lawyers than clients will discount your services as
well.  And I’ll admit that if you’re charging half of prevailing rates,
clients will start to question your qualifications.  But for most
clients (in fact for many lawyers), your hourly rate, even with a thirty percent discount will still be steep enough that
clients won’t think you’re losing money.  And if clients ask why you’re
so cheap, just have a stock answer ready – for example, explain that as
a new attorney, you have the advantage of low overhead or ease with
technology that your older colleagues don’t and you’re passing the
savings on to clients.

Once you’ve offered a lower rate, I agree with Cartier-Liebel that
you shouldn’t bargain.  If a client asks you to work for $150 an hour
when you’ve quoted $175, you must tell the client that you can’t go any
lower.  In fact, it’s easier to stick to your guns when you’re giving clients a deal to begin with.  Also, take an adequate retainer to guarantee payment and draft
your retainer agreement to give yourself grounds to seek withdrawal where the
bill is delinquent.  Also, try to give clients an estimate so that
they’re not surprised at the overall fee.

Cartier-Liebel also says that other attorneys may be angry with your
for undercutting cost.  Not me.  When I was a young attorney, there
were matters I’d handle for half of what I charge now in order to get a foot in the door.  My clients frequently couldn’t pay more but they
never stiffed me either which is what happens sometimes when clients agree to a high hourly fee when they really can’t afford it.  Now that I’m more established (not to mention a parent), those cases that I once took don’t make sense for me,  so I’m more than happy to pass them on to young eager-beaver attorneys
willing to charge less to get their practices going.  In short, that
younger lawyers charge less than me isn’t a threat.  Rather, it’s a blessing,
because it lets me forego cases that I don’t want, while knowing that
I can still direct the client to other representation.

As for older, more experienced attorneys who’ve left biglaw, their
lower prices can help them draw a broader circle of clients.  A few
months ago, I referred to small client to a former biglaw, now
successful solo.  This attorney had handled massive deals and corporate
structurings while a partner at a large firm, yet his rates as a solo
were so reasonable that I couldn’t believe it.  And the client whom I
referred “got it” right away.  The client didn’t think less of the
attorney for charging competitive rates, rather, he was smart enough to
realize that he was the beneficiary of this attorney’s lower overhead.

The other aspect of the “charge prevailing rates” advice that I simply don’t understand is whether any other lawyers (besides me) care about what they themselves pay for services.  Years ago, when I was terminated by my former law firm employer, I briefly considered a discrimination action.  I called several lawyers for a consult and ultimately chose the one who offered a flat $100 consultation fee rather than those who wanted to charge me $175 or $200 an hour just for intake (incidentally, the lawyer who charged the lower fee was a new solo who has become quite successful).  Do the marketing experts who tell you to charge high rates actually take their own advice and pay more for service that could be had for less?

As a final word, I’m sure that you’ve heard the gleeful testimonials from successful
solos who trumpet “And I raised my rates by $50 and I have more work
than ever!”  And I believe them.  But many of those solos have been in the
trenches for many years and are reaping the benefits of their labor.
Someday, you too will reach the point where you can, if you choose,
charge what the market will bear.  But to reach that point, first you
need to get on the map.  If it takes undercharging to put you there,
then by all means, ignore the conventional wisdom and do it.

  • http://franchisepundit.com Ryan

    Great post. I’ll share this similar observation…
    I had a conversation with an big law partner who, after a firm retreat with an industry consultant, confirmed the consultant’s perspective that “legal services above a particular skill level is a commodity”. Everything else generally being equal, clients will end up with the same final outcome regardless of how much they pay for competent specialists.
    A way, he said, to distinguish oneself and possibly charge more is through customer service, smart communication with the client, and over-delivering (getting things done early, less hours).

  • http://www.lawbizblog.com/management-403-dont-lower-your-fee-fee-is-not-the-issue.html LawBiz Blog

    Don’t lower your fee — Fee is not the issue!

    Carolyn Elefant, in MyShingle, suggests that a new lawyer should compete on price. Perhaps to be more fair, she asks “why not?”…

  • George M. Zuganelis

    I have tried to follow the advice of the “marketing gurus” not to lower my fees. What I’ve learned was that the ordinary client will choose a lawyer based on how inexpensive his/her fees are. They don’t care about nitches, or expertise. A lawyer is a lawyer to them. I do a lot of DUI and criminal defense. I have to compete with lawyers who charge very “cheap” fees. It’s difficult to try to explain to the client that he/she may have to plead guilty even though I’m the “expert” in my “nitch” and they’ve paid me a very expensive fee. The cheap lawyer can do that for a lot less. So I’ve gone to a graduated fee structure. So much for a plea of guilty; so much more for a trial; even more for a jury trial; and, if they want me to try to save their drivers license, even more. It’s even more if I have to hire an expert witness to attack the breath machine. And there is still no guarantee that the case will be won. I have a similar structure for misdomeanors and felonies. I guess that’s what competition is all about.

  • http://www.HowToMakeItRain.com RJON@HowToMakeItRain.com

    YOU REALLY DON’T HAVE TO LOWER YOUR FEES
    Usually I agree with most of what I read on this blog. But in this case, I have to respectfully disagree. And not just because I’m one of those marketing gurus who has taught hundreds of solos how to compete & kick-butt against the big firms without lowering their fees. But instead because of the VERY profitable practices of more solos than I can count, whom I’ve helped go out on their own, not to mention all the pricing mistakes I’ve made on my own learning this stuff the hard way when I started out as a solo lawyer…
    WHERE THE PRICING PROBLEM COMES FROM
    The pricing problem starts in law school and is made worse by management of larger & even many mid-size law firms. Law school teaches you (implicitly) that your work has no value – that’s why we pay them, & not the other way around! Management of most law firms treat you as a factory worker on the production line & gets you obsessed with the number of hours you are billing – they don’t want you to learn how to become a Rainmaker because that would shift the balance of power & loosen their control over you. So they never teach you any Rainmaking Skills. “Just be the best lawyer you can be & everything else will take care of itself.” Sound familiar?
    WHERE ARE THE INSTRUCTIONS!?!?!
    Have you ever tried to assemble a new toy for your kids (or yourself ;-) from the picture on the box or from what the guy told you at the store? The word “Just” at the beginning of any kind of advice or instructions is usually a red flag that something is missing. “Just lower your fees” is no exception. “Just Lower Your Fees” is equally bad advice as “Just Don’t Lower Your Fees”. . .unless you make either change to your business model the right way with appropriate and deliberate adjustments to the rest of your marketing & management activities as well.
    RESTAURANTS & LAW FIRMS
    Just like there are different kinds of restaurants, there are different kinds of law firms – this is a factual observation, not advice and so the “just” rule above does not apply! Anyway, depending on many factors, I sometimes eat at McDonalds, stop in at a local bagel shop, or make reservations at a nice restaurant that requires them because of the business model its owners have chosen to pursue.
    I am not at all surprised that a mill-shop ticket-defense firm discovers its clients are very price-sensitive (though there are way to change that dramatically.) But it is probably bad advice for a highly specialized litigator (as only one example of dozens I could choose from) to focus his/her marketing on price. As alluded to, even the mill-shop ticket defense firms can take steps to effectively insulate themselves from price sensitivity with the right kind of marketing plan.
    DON’T “JUST” COMPLAIN ABOUT IT…DO SOMETHING ABOUT IT
    If anyone doubts that you can protect your fees and still have plenty of business, I invite you to put this marketing guru to the test! Check out my “How To Market A Small Law Firm” audio program & listen to it in your car when you’re stuck in traffic. You’ll learn how to avoid competing on price, attract more & better business, or your money back…and I’ll give you 365 days to put me to the test. Don’t just complain about it while you go along making less & less money competing on price. Give me a chance to show you how you can do something about it!

  • http://67.225.230.212/~sh1ngl3 Carolyn Elefant

    These comments respond primarily to RJ Robins. First of all, I stand by my position that many newer solos are not well served by the advice of gurus and others who advise them to overcharge. For many new solos, this is how they get their feet in the door. I’m not saying that new solos should wed themselves to below market rates – and I’ve spoken out several times on my blog about the dangers of, for example, creating a law practice where you only take court appointed matters at rates of $35 – $75 an hour.
    On the other hand, just as there are different types of restaurants, there are different phases of practice. When you start out, you don’t need money as much, what you need is experience and exposure. If a new solo is willing to charge below market, he or she will get that experience and exposure that will allow him or her to go to the next level.
    Finally, the best example that I will give about not following conventional wisdom in setting prices – and one that you’ll never hear marketing gurus discuss – is Tom Goldstein, formerly of Goldstein & Howe. As is well known, Goldstein got his start in Supreme Court litigation by taking two Supreme Court cases for free. Even after he started his firm, close to 60 percent of his practice was pro bono, supplemented by work for Lawrence Tribe and his own cases. Goldstein was doing this while biglaw firms were charging $400 0r $500 an hour for Supreme Court litigation. Well, guess what – Goldstein built such a niche for himself and generated so much experience, that he started getting fee cases. What’s more is that the big firms started copying him, taking cases for free to build their practices. Had Goldstein opened his door for Supreme Court litigation and hung out a sign saying $500 an hour, no one would have gone to him. But by taking the route he did, he built a name for himself.
    I’ll conclude by noting that MOST marketing gurus would be content for me to publish a post about their product and would not use the comment section about advertising for their product. Most regular readers of this site are well aware of how difficult it is to get me to post about any events or products, both because of my busy schedule and my reluctance to provide information about products that I don’t know anything about personally. I certainly don’t mind criticism of my position, and I want to educate readers about all possible options. But my comment section shouldn’t be used as free advertising; I provide enough free service here already.

  • Susan Cartier-Liebel

    Carolyn,
    I’m glad my column reenergized the debate about fees. Ironically, you and I don’t disagree. If you reread my column you will see I say to charge within a comfortable range of the going rate. You say 30%. Reasonable is a relative term. However, I only have 750 words to demonstrate a point. The point of my column is to disabuse a new graduate who wants to hang a shingle of the self-defeating notion he or she has “no value.” They are discounting their worth as lawyers and pricing accordingly. My goal is to make this new lawyer understand they do have worth in the marketplace for a variety of reasons. If price is strictly a marketing tool and not a reflection of one’s self worth then any marketing/price structure that works for them to get business is fair. There is alot of creativity out there and should not be squashed by a one-size-fits all mentality. It has to work for the individual and some are quite successful charging market rates; others are successful creating their own unique pricing formula. As long as the price is not a means of expressing lack of faith in one’s self as a professional, then there should be few limitations on creative pricing.
    Thanks for a wonderful resource. You’ve been referenced in an upcoming column because in my opinion, your site is one-stop shopping.
    Susan Cartier-Liebel

  • http://www.legaleaseconsulting.com/legal_ease_blog/2006/06/the_dilemma_ove.html Legal Ease Blog

    The Dilemma Over Legal Fees

    Carolyn Elefant has written a couple of posts in the past few weeks that are good starting points for discussing fees and how lawyers determine fees. I’ll be discussing them in this post and my next post. The first was

  • http://www.chinalawblog.com China Law Blog

    I completely agree with you on both of your main points. We are an international law boutique and our competition is the mega firms and we are quite upfront about how our fees are lower than theirs and why. At the same time, we absolutely never discount our hourly rates. Never. Once you discount you are on a very slippery slope and you are essentially telling everyone that the fees you use are just to test the waters.
    PS — This is my first time at your blog and I love it!

  • http://www.HowToMakeItRain.com RJON@HowToMakeItRain.com

    I’d like to repeat & expound upon something I wrote in my previous post & then respond to the criticism about my letting readers know about a solution to their problem/opportunity to learn some important skills they never taught us in law school:
    REWIND: The word “Just” at the beginning of any kind of advice or instructions is usually a red flag that something is missing. “Just lower your fees” is no exception. “Just Lower Your Fees” is equally bad advice as “Just Don’t Lower Your Fees”. . .unless you make either change to your business model the right way with appropriate and deliberate adjustments to the rest of your marketing & management activities as well.
    BE DELIBERATE & CONSISTENT
    Trying to “break into the market” or “get your foot in the door” with a low fee is one approach. Doing high-profile pro bono work is another approach. And yet a third approach is to find a very narrow niche. And a fourth is to go broad. A fifth is to introduce contingency fees into new practice areas to lower resistance but still earn premium fees. . . I could keep going but I think readers get my point that there isn’t “just” one approach when it comes to a fee strategy. But it must be done in a deliberate way that’s consistent with the overall business model. Imagine a fancy restaurant competing on price with a 99-cent value meal, or Mc Donalds trying to charge $25 for a steak!
    I’m a bit puzzled as to how anyone could find criticism with these statements I made(?)
    THERE’S NOTHING NOBLE ABOUT BEING POOR
    If a new lawyer has a business model & a marketing strategy that calls for low introductory rates as a way to break into a new market, get experience, or get a foot in the door with a new client…then that’s great & I’ve used that strategy myself when I was a solo and with some of my clients when unique circumstances warranted it.
    But I think it’s inappropriate to encourage new lawyers to charge low fees just for the sake of charging low fees; Or with the idea that maybe some clients will give them a chance, but without a solid marketing strategy or a plan for exactly how to translate low initial fees into repayment of student debts, college fund for the kids, health insurance, rising real estate prices, and maybe even (gasp!) some money to enjoy on luxuries too!
    I think this illustrates my earlier point about advice that begins with the word “just” – you need to have a plan!
    RESPONSE TO CRITICISM
    Ms. Elefant wrote: “MOST marketing gurus would be content for me to publish a post about their product and would not use the comment section about advertising for their product…I certainly don’t mind criticism of my position, and I want to educate readers about all possible options. But my comment section shouldn’t be used as free advertising; I provide enough free service here already.”
    I make absolutely no apologies for telling readers about a resource that could help them solve their problems/improve their practices. I won’t be content until I’ve worked myself out of a job & every law school in the country adds a course on how to professionally manage & market a small law firm to the curriculum! Lawyers are obviously taking time out of their busy schedules to read these posts because they are looking for solutions to help them market their law firms more effectively.
    What am I supposed to do, talk all around the subject but NOT tell readers that I’ve created a solution that I believe in so strongly that I offer a 100% money-back, no-risk guarantee for a whole year? Ms. Elefant, I very much appreciate the fact that you shared my “Ten Rainmaking Mistakes Made By Solo Practitioners” free e-book with your readers. And I’m pretty sure every one, of the nearly 2,000 lawyers who clicked on your link & read the book appreciated your efforts to let them know about that resource too.
    You wrote that you “. . . want to educate readers about all possible options.” While one of those options is to spend years reading blogs & listening to snippets of advice from other lawyers you meet at bar functions, another option is to listen to an audio program in your car to get a comprehensive explanation that will short-cut the learning curve and save years of frustration & hundreds of thousands of dollars worth of lost opporutunies.
    Ms. Elefant, I have always enjoyed your blog & I have alot of respect for you to take the time out of your own busy schedule to provide lawyers around the country, and even the world, with this incredible resource. I hope you & all of my fellow readers & fans of MyShingle.com will interpret these additional comments and this clarification of my position, in the positive & respectful manner it is intended.
    Respectfully,

  • Ian C

    This may an overly simplistic or silly question, but how do you find out what the going rates are for different types of tasks or services? I am contemplating hanging out my shingle, but one of the questions that I have a hard time answering is what to charge initially. I don’t imagine that other lawyers are going to be forthcoming if asked directly what their fees are. And I dare say that there are no published guidelines. Any advice?

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