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Legal Fees

Playing The Price is Wrong

“The bitterness of poor quality remains long after the sweetness of low price is forgotten” is a quote frequently attributed to Benjamin Franklin. Quite true, but it is more complicated than that when we are dealing with things, such as legal services, that the consumer often does not understand.

I spoke to a lawyer the other day who told me about her brother who is running a technology start-up company. This fellow is quite intelligent and very detail oriented. He is quickly becoming disenchanted with the lawyers who he has sought out to help him with his business. Among other issues, he perceives that they are giving him standard form documents which they do not themselves fully understand.

I asked this lawyer if her brother was very cost conscious and she said that he was, which is understandable because he is in start-up mode. Then she told me an anecdote about her brother having found a lawyer who is billing at $200.00 per hour who turned out to be an idiot.

My reaction to her story was that I would expect that any lawyer billing only $200.00 per hour would be doing work at a very unsophisticated level. Now, the point of this story is not that you can judge the quality of a lawyer’s work by how much they charge. I have certainly seen complete bumbling fools charge significantly over $600.00 per hour and very capable counsel charging $300.00 per hour. No, my point is about how we perceive value, and like it or not, when someone is charging more for their services, we assume that they are going to do a better job.

There is of course a whole class of clients who choose their lawyers based on who will charge them the least. They are fools and they tend to attract lawyers who are less skilled than most. This article is not about those clients or those lawyers. The game of ‘how low can you go’ in setting your fees to attract business is not one that ever held much interest for me.

I have often seen capable lawyers make the mistake of keeping their fees low in the belief that doing so will give them a competitive advantage over other lawyers who charge more. I suppose that to some extent, many of us do that. For example, I always made the point to potential clients that my medium-sized firm charged a great deal less than the larger Toronto firms. However, at the same time I did not sell my firm or myself based on the lower fees. My sales pitch was that we could provide mid-market firms with better service and more practical advice than the downtown firms. And while my rates were definitely cheap compared to the downtown firms, they were always within striking distance, because if the discrepancy were too large the clients would assume that we could not be that competent.

Another example:  Lawyers often promote business by giving free seminars. When people do not pay for the seminar, they are often not committed to attending. They sign up. Something else comes up. They don’t show up. At our firm we learned this lesson and started charging for our seminars. The seminar revenue was not particularly important to us. The goal remained to maximize attendance and develop business. However, attendance was better when we charged because people perceived that we were offering something of value.

The simple fact is that many clients have no idea of how to find the best lawyer to address their issue. Since they do not have other tools, they tend to compare lawyers based on something that they do understand, such as price. For some of them, that means choosing someone who charges less. For others it means choosing someone who charges more.

Even I sometimes did that. For example, it is hardly a secret that in Toronto residential real estate has become a commodity practice dominated by sole practitioners who rely on volume and have most of the work done by clerks. They often have to compete on price. Because of this, many larger firms long ago abandoned this area of practice to smaller firms with lower overheads. As a result, when my good clients used to call me to ask if we could handle a house purchase for them, I usually had to say no and refer them elsewhere. I would tell them that I would refer them to the most expensive residential real estate lawyer who I could find. Shocked, they would ask me why I would do that and I would explain that the commoditization of the practice had resulted in there being many lawyers who could not afford to spend much time on a file and that my hope was that those whose fees were higher were more likely to provide better service and advice.

When I retired and moved to the country, I needed to find a lawyer to handle the purchase of my house. I asked my real estate agent for referrals to local lawyers. He gave me three referrals. I rejected them all, because none of them practiced real estate exclusively and all of them charged an amount that, based on my experience, could not have been profitable if all of the work required for the proper handling of the file was actually to be done. Eventually I found the most expensive real estate lawyer that I could find in the area and hired him.

My point? Deciding how to attract new clients for your legal services is much more complicated than “charge less, get more clients.”

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