February 7, 2007
Law Firm Rate or Fee Increase Letter
It is that time of the year—law firms are sending out rate increase letters. How do I know? Morepartnerincome.com is getting 20-30 search engine hits each day from law firms searching for examples of letters announcing fee increases for legal services. In light of this activity, it seems appropriate to update and republish my earlier post on the subject.
A simple and straightforward letter like that below is usually best. If the increase is reasonable and the firm’s fees are competitive, increase events will usually be accepted by your clients without objection. However, your most significant clients deserve a phone call or visit, which you can then follow up by letter.
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Sample Letter Body
Thank you for the opportunity to provide your legal services. I trust that you have found our entire organization responsive to your needs. Please know that I always welcome suggestions for improving our services and your satisfaction with our processes and procedures.
Periodically, it becomes necessary to change our prices to remain competitive and maintain the level of service that our clients expect. [(or alternatively) As we discussed earlier, it has become necessary to change our fees in order to remain competitive and maintain the level of service that our clients expect.]
I have enclosed a schedule of the fees and hourly rates that will apply to services provided to you beginning __________________.
I would also like to take this opportunity to point out that while the firm’s services are usually provided on an hourly basis consistent with customary law firm practices, there are alternatives in special situations. Should matters arise where you prefer a fixed fee arrangement, for example, we will be happy to work toward such an agreement based on the defined scope of work to be performed.
If you have any questions or suggestions concerning our relationship, please call.
Sincerely |
For most midsized law firms, the increase letter is a minor concern compared to the difficulty of actually implementing a price increase. It is far easier for the firm to decide on an increase than it is to actually implement the decision. Law firm pricing is far more complicated than a simple schedule of standard rates. Client agreements include:
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Fixed fee engagements
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Retainer arrangements
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Negotiated exceptions to the firm’s standard rate schedule
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Client-mandated rates accepted by the law firm
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Long-standing clients still being billed using rates in effect at the time of origination
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Etc.
Even disregarding the above complexity, what about the clients you added the week or month prior to increasing the firm’s fee structure? You are probably not going to immediately increase prices for your newest clients. Given the complexities of a firm’s current pricing, getting the benefit of a rate increase often requires analysis of each client situation and dealing with each client individually or, at a minimum, in groups.
One approach is for the firm to review its standard hourly fee schedule annually and apply those new rates as the baseline for setting or negotiating the fee for new clients and matters coming into the firm. With respect to the firm’s existing clients or matters, however, the approach would provide for review and re-pricing on their anniversary date. Such a plan provides an orderly and manageable process for renegotiating fees. Your accounting system should provide you with the ability to code client/matters by an anniversary month.
Absent an orderly and manageable process like that described above, some clients simply fall through the cracks. They continue to enjoy unadjusted rates for years and become out of synch with firm price movements.
Firms taking the annual review approach for new matters coupled with anniversary date re-pricing for existing clients need not send a general rate increase letter. Letters would be warranted on a client-by-client basis as appropriate.
It is also important to understand that if your firm is underpriced, annual increases alone will not solve the problem. Those firms need a deliberate approach to restructuring their fees based on market information. How do you know how your prices compare? Traditional surveys provide some insight, but they are often 18 to 24 months behind the curve, and matching an individual firm to a meaningful peer group is an imperfect task. Better information is now available through new benchmarking services and, for Juris law firms, through the new Juris Insight service.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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Filed under Pricing by Tom Collins
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