There are basically four types of fees: fixed, hourly, contingency, or “piece of the deal.” The latter two can have various arrangements, which may involve complex negotiations before the fee is established. Most fee challenges occur with either fixed or hourly arrangements, so let’s focus on them.
Define the Desired Result
Whether you’re writing an extensive proposal or just orally quoting the fee, there is a process you should follow that will either avoid a challenge to the projected fee or equip you to respond to a challenge. The first step is to sit down with the client to define what he or she wants to accomplish as the result of retaining you. Preparing an estate plan? Drafting an employment agreement? Purchasing a property? Defending a suit for damages?
This discussion will also enable you to determine if the client’s desired result is realistic, legal, and ethical. Suing a neighbor for $30,000 because his 10-year-old son tossed a TV into a pond certainly isn’t realistic; deliberately failing to disclose that a building sits on contaminated ground certainly isn’t legal. So defining what the client wants may do more than just avoid fee challenges later on. It may also reveal that this is a client you don’t want.
Determine the Fee Expectations
At this point it is often wise to ask the clients what they expect the fee could be or what their budget is – it might also save you wasted time. This is desirable whether it’s your Uncle George, who has rarely if ever retained a lawyer, or the general counsel of a major corporation. If the client expects to pay $800 for a contested divorce or has budgeted only $13,000 to defend a patent infringement suit, you should stop right there and educate them otherwise.
Define the Steps Involved
This is important, whether you’re quoting a fixed fee or proposing an hourly basis, and whether the matter is simple or complex. List every step or task that is required – or might be required – to accomplish the desired result. And I mean every step or task, no matter how small and whether you would handle it yourself or an associate, paralegal, or even a staff person would handle it. You’ll see why down below.
Quote the Fee
After listing all the steps or tasks in a written proposal or in an oral discussion with the client, state the fee. If it’s a fixed or flat fee, do not include hourly rates, whether yours or anyone else’s who would be involved. When the fee is fixed, most clients don’t care about hourly rates. The total fee is all they are interested in. If you are quoting on an hourly basis, consider giving a range, for example, $8,000 to $8,700. Then give the hourly rates of yourself and any others who may work on the matter.
If Challenged, Never Cut the Fee!
If the client challenges the fee, you do two things. First, reconfirm the result the client wants or the “product” you will deliver, for example, an estate plan or employment agreement. Then go down each of the steps you have listed to accomplish the result or produce the product. What you’re doing at this point is, in effect, saying to the client, “Look at everything that I (or we) must do to give you what you want.” To put it another way, “You get all of this for only that (small) amount.”
If the client still balks at the fee, decide if you really want this client – or if you desperately need the fee income. If neither condition exists, politely say that you’d love to serve them but this is what the fee would be. Don’t argue or say something like “My fees are fair and reasonable” or “You obviously don’t know what a good lawyer like me costs.”
If you do want the client or need the fee income, never cut the fee. Instead, requote it!
There are two ways to do this:
If you quoted on an hourly basis and included a range, as suggested above, offer to cap the fee at or below the higher amount and add, “Regardless of the amount of time required.” More often than you might expect, clients will accept this because they now know what the maximum will be.
If you proposed either a fixed or hourly fee, go back over all the steps you listed (now you know why you listed everything) and say, “If you could do this or would accept that, we can eliminate certain steps and the fee would then be x (lower than your initial quote).”
Remember, it’s a business negotiation. Learn how to do it and you’ll get the fee you deserve.