Written by Yvonne Eckert, JD
Regardless of how long you have been in practice, establishing a thoughtful pricing structure and regularly revisiting it are necessary evils. Although many estate planning attorneys struggle with developing a framework to evaluate pricing structures and implementing a regular schedule to review prices, once you have established your pricing, you can rest assured that it will continue to accurately reflect the value of your services and adequately compensate you for your hard work.
The Framework
The initial step in establishing an intentional pricing strategy is to become knowledgeable about your clients, your market, and your overhead. Who is your ideal client? What are other law firms in your geographical area charging? What expenses and overhead should you consider? Identifying this information will enable you to consider your pricing strategy in the appropriate context.
Who is your ideal client? When identifying your ideal client, consider their age, profession, stage in life, and economic situation. Are you targeting young, single professionals; working-class families with school-aged children; retired professionals with adult children? The characteristics of these different groups matter for several reasons. First, the potential complexity of their estate plans varies. The first group might need a simple plan that includes only a simple will or revocable living trust. The second group might need wills or revocable living trusts with continuing trusts to protect their children’s inheritances. The third group, who may have accumulated more wealth over time, might need a more complex plan. Second, the economic means of each group vary. For example, the second group clearly needs estate planning but might struggle to cover their mortgage, childcare costs, and other monthly expenses. If this group is your ideal client, do not set your prices so high that they cannot afford to hire you. And finally, keep in mind that, because creating an estate plan is not a one-time event, representing a client who is just starting out will, hopefully, lead to future engagement opportunities when they go through various life changes. For example, a young, single professional might need future planning if they get married or start a family. (Tip: stay in touch with them after they have created their plan so you can be the one who helps them with future estate planning as their lives change!) Therefore, you will want to factor the goal of building long-term loyalty into your pricing structure.
What do others charge in your area? The prices that others charge for similar services matter. First, ABA Model Rule of Professional Responsibility 1.5 requires your pricing to be reasonable. One of the factors in determining reasonableness is “the fee customarily charged in the locality for similar legal services.” Therefore, knowing what others in your locality charge for similar services is essential when establishing your prices. Second, make sure you are comparing apples to apples when comparing your prices to what other firms in your area charge. If your firm is a higher-touch firm—meaning you (or your staff) spend more time with each client, taking care to personalize each estate plan to the client’s specific goals and wishes, ultimately creating highly individualized estate plans—do not compare your prices to those charged by a more-commoditized estate planning practice where clients are quickly provided a standard plan with little counseling or personalization. The values of these services and work products are vastly different, and your pricing should reflect that reality.
What is your overhead? One of the most common mistakes attorneys make is failing to fully account for their expenses and overhead when setting prices. To run a sustainable and profitable law firm, it is critical to factor in not only obvious costs such as staff salaries, rent, and utilities but also additional or indirect expenses such as marketing costs, malpractice insurance, and office supplies. Entrepreneurial attorneys also often fail to consider their own salary, along with a healthy profit margin, when setting prices. Be sure to include a reasonable salary for yourself. Profit should not be an afterthought; it is a key component in a thriving law practice. In the book Profit First, author Mike Michalowicz highlights that “[p]rofit is intended to be your reward for having the guts to invest in your own business.”
Choose a Pricing Structure
Hourly billing is the traditional pricing model for legal services. Attorneys commonly track their time and charge clients based on their hourly rate. The benefit of this method is that it allows the attorney to account for the actual time spent on, and the complexity of, a particular case and ensures they are fully compensated for all their work. There are advantages and disadvantages to this approach. The advantages to this model are that clients understand they are being billed for the exact time spent on their case; attorneys can adapt to changes in a case’s complexity; and most clients are familiar with this pricing model, making it easier to implement. One of the disadvantages is uncertainty for the client, sometimes resulting in sticker shock when they receive a bill and a perception that the attorney has not worked efficiently. However, perhaps the most important disadvantage for estate planning attorneys is that hourly billing might not represent the actual value of the services provided, especially when the attorney becomes more efficient, gains more experience and wisdom, or invests in technology or additional staff to work smarter and faster.
Flat-fee pricing, charging a fixed price for a particular type of estate plan (such as a trust-based or will-based estate plan), has gained popularity in estate planning because it combats several of the disadvantages of hourly billing. Flat fees are more predictable for clients; they allow attorneys to streamline their processes and invest in technology to work more efficiently without being penalized and can eliminate billing disputes about the final costs of services. However, this pricing structure is not without its own challenges. First, a fixed price leaves little room for unanticipated complexities that might arise when creating an estate plan. Second, although flat-fee practice models may make it easy to standardize prices, practices that provide higher-touch client experiences or that regularly help clients with more-complex estate or tax planning could lose money by setting prices too low for clients who require more time and planning.
Value-based pricing is an enhanced version of flat-fee pricing because the value of the services the client receives is the basis of the price they pay. This pricing model recognizes that flat-fee prices are oversimplified, and it better captures the personalized planning you may provide for some clients. For example, contrast a trust-based plan for a married couple with children of that marriage with a trust-based plan for a blended family where there might be children of spouse 1, children of spouse 2, and children of spouse 1 and 2. In a pure flat-fee pricing structure, you would charge both sets of clients the same amount, although you would likely spend significantly more time counseling and drafting the blended family estate plan (which would likely contain more-complicated distribution plans after the first spouse dies). In a value-based pricing structure, your pricing is based on the outcome your client wants and their unique estate, goals, and family structure. Therefore, the price for the blended family trust(s) would be more than the non-blended-family trust(s), and, importantly, you would be more fairly compensated for the time, effort, and expertise required to create plans for each.
Review Your Prices
Prices should be reviewed annually, ideally as an agenda item at your firm’s annual strategic planning session or end-of-year financial review. At that time, review your firm’s overhead and other expenses and any new competitive intelligence you have gathered about how others in your locality are pricing similar services. Consider any additional expertise or value that you now include in your services. For example, did you take specialized continuing legal education courses or receive additional accreditations or accolades this year?
You should also analyze the economy in general. For example, if inflation has increased the prices of all goods and services, perhaps your prices should be slightly adjusted as well. Regularly adjusting your prices is standard practice in all industries, and it should be in your law practice as well.
Setting aside time to regularly review pricing allows you to make informed adjustments that reflect the current true value of your services and the evolution of your law firm.
Implement Your Strategy and Benefit from the Results!
Thoughtfully creating a pricing structure is one of the most important steps an estate planning attorney can take to ensure both short-term and long-term success
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