My first month of solo practice is almost over. Overall, I am really happy with how it has been going. I’m pulling in new clients through the marketing I am doing and I am actually doing lawyering work. Now, along with getting better at lawyering and getting new clients, I feel like I also need to work on how I run my business.
So, I spent the evening doing some market research. I looked up Texas Bar stats on what lawyers are charging in my area, and I realized that I am not pricing my hourly rate high enough. Also, I’m doing a lot of flat rate work and working with payment plans, but I haven’t, until now, hammered out the specifics of payments or flat rates.
Flat rates are good for new lawyers
Flat rates are great for new lawyers, because it doesn’t matter how long a task takes me, I am only charging the client for what it should take me. That said, the problem with setting flat rates without any other stipulations is that I don’t make any money until I finish the project. Which is great for a short project, but if its a project that will take a month or more, even though my time involvement is fairly little, cash flow gets tight. It is nice to have the money in my trust account and know that I am owed a certain amount, but I am not always in control of how long a process is going to take and therefore I don’t control when I get paid.
Cash flow issues with marketing
Currently, the most effective marketing I am using seems to be through Unbundled Attorney: they are bringing in a lot of good leads and I am managing to convert more than enough to get a great ROI. The problem is that marketing costs money. I am paying for leads, or in the case of Unbundled, I am racking up a bill for leads that is going to come due soon. And, although I’m engaging new clients, I am fighting with the fact that the money they give me isn’t earned yet, because my flat fee agreements only state that the money is earned for the whole case. Example: If I am charging $2500 for a divorce, then I might have money in my trust account to pay that $2500, but the money is still the client’s money until the divorce is complete. Therein lies the problem, I’m racking up bills, but I am not really getting paid until everything is said and done.
Structuring fee agreements differently
I talked to another attorney that works with Unbundled Attorney about the cash flow problem of flat fees and payment plans, and she had some good insight. She suggested that I structure my fee agreements so that I am earning money on a task by task basis, so that as the client is paying the money is already earned. This seems simple, now that I think about it, but conceptually it was a stretch at first.
There are really a couple of ways to make this work, I am tossing around which works best for my practice:
1. Bill hourly, but cap your fees.
Total attorney fees are going to be $2500. Client is required to make a 20% down payment ($500) and then is required to make weekly payments of $100 until the total amount is paid. So, after the down payment client owes $2000, which he will pay off in 20 weekly payments. Engagement agreement states that attorney is earning the fees at $200 per hour, up to $2500, and upon completion of the project the full $2500 is owed. I just track my time as I do the work, and bill weekly for the time I have spent against the trust balance.
2. Benchmark Fees
Add language to the engagement agreement that sets out fees per task completed. Pleadings or motions are a certain amount. Appearances are a certain amount. Depositions are a certain amount. Again, cap the maximum fee charged at whatever the agreed upon amount is, and state in the agreement that upon completion of the final order or judgement, the full fee amount is earned.
This is all going to take some time to work out
The problem I am having right now is that I haven’t done enough cases to know what to expect on average. I know what I have dealt with so far, but it will probably take me a year of doing this solo to have a good idea of how many appearances an average divorce is going to require, et cetera. Until then, I will keep making tweaks to my agreements to make sure I keep my clients in reasonable fees and don’t run my business into the ground.
Finally, follow Foonberg’s rule where possible
There is a good book by Jay Foonberg called How to Start & Build a Law Practice. Foonberg has a rule, which I’ll paraphrase to, always get paid in advance. I like this rule. Because of the way I’m starting my practice, it isn’t always possible, but I sure like when I get a client who is willing and able to just give me the full retainer for the work I am doing, or going to do, and I can just bill against that, as needed. Other lawyers on LawyerSmack have suggested that I am going to regret not following this rule more strictly, which I may, but I probably need the experience of losing some fees to let me know that.