Five Initial Steps to Raising Your Hourly Rates

This is the first in a series of posts about one of the most important and impactful decisions a law firm can make: how to increase your hourly rates. Law firms and other professionals that charge by the hour often leave thousands if not millions of dollars on the table by not having a strategy for determining what hourly rate to charge and how and when to communicate them to clients. Too many professionals rely on “Happy New Year! We’ve raised our rates” notices. There is a better way.

Five Initial Steps to Increasing Hourly Rates


  1. Start With New Clients

The easiest way to think about increasing your fees is to focus first on what fees to quote to new clients. Raising fees for existing clients is more complicated because you must deal with their expectations, the history of how you’ve dealt with them in the past, and other factors. Thus, the fastest way to increase your fees is to quote a higher fee to the next new potential client with whom you communicate.

  1. Resistance to Your Fees is a Good Thing

Before delving into the details of how to increase fees it’s important to have the right mindset about your fees. Although lawyers tend to have a reputation for being confrontational, the reality is that many lawyers approach the process of talking to potential clients about fees with the attitude that they should avoid disagreement at all costs. Trying to minimize objections is not wise. If you spend a whole year or more without any potential clients objecting to the fees you quote, you are almost certainly not charging enough for your services. Your goal is to generate just enough objections to know that you are not leaving lots of money on the table. It is of course possible to have too much resistance. If, for example, half of your potential clients object to your fee or fail to sign a fee agreement it is certainly possible that you quoted too high a rate. But in our experience the opposite is much more likely to be the case.

  1. Quoting Higher Fees Can Make You More Attractive

Too many professionals assume that potential clients are looking above all to spend as little as possible on their services. That worldview is derived in many ways from notions of traditional economics in which humans are solely motivated by financial considerations. But the reality and psychology of how potential clients decide to retain lawyers and other professionals is much more complicated. Because professionals provide services that are perceived to be important, it is a mistake to assume that potential clients are always looking for the cheapest alternative. And the more what you do is perceived to be important, the more attractive it is to quote a higher fee. Consider the extreme example of the loved one who needs lifesaving brain surgery: Who is going to go home and report to their significant other that they found the cheapest surgeon in town? In general, the less the potential client can fully evaluate what a professional does, the more likely they are to conclude (not without justification) that someone who quotes a higher price might be a higher quality provider.

  1. The Psychology of Negotiations

There is an important additional factor that comes into play when deciding what initial hourly rate to quote to a potential client. Not only are higher fees potentially attractive in and of themselves, but most negotiations allow you to quote a higher initial rate and then reduce it if you must. Thus, for example you can start by quoting 695 an hour and then seal the deal by agreeing to reduce the rate to 675 an hour. But it’s very hard to start low and then substantially increase your fee during the course of a single negotiation. Thus, if you initially quote $325 an hour, and then find out that your potential client is used to paying much more, you will be stuck with the fee you first quoted.

  1. Resist Quoting a Rate Too Soon

The most common mistake that lawyers make is when communicating their fee is to disclose it before they collect enough information to put their fee in context. Every hourly fee that is quoted can sound pricey if devoid of context. Given that the federal minimum wage has for approximately 20 years been $7.25 an hour, every hourly rate quoted by every lawyer can sound ridiculously high. Is $500 an hour expensive for an experienced lawyer? Is $295 an hour a lot for a paralegal? These questions are unanswerable on their face. To know whether a fee or hourly rate is high or low you must be able to compare it to something. Moreover, it’s especially important that the potential client be put in a position where they can compare the quoted hourly fee to what is at stake for them or some other measure that they understand. Thus, if the CEO of a company looking to acquire a $10 million competitor is quoted $500 an hour that rate might sound like a bargain given what the lawyer is helping the client accomplish. There are differences in what different clients expect in terms of practice area and geographic location. But as a starting point, wait until you and the prospective client have discussed the context for what the lawyer will try to accomplish for the potential client.

The Importance of Mindset

What do all these steps have in common? They all relate to a mindset in which the lawyer has confidence and exhibits patience.  When a lawyer approaches the prospect of discussing a fee with anxiety and trepidation they tend to rush through the process, thereby undercutting their value. To be sure, it can be difficult to maintain calm especially when economic times are tough, and you feel desperate to obtain a new client. But if you want to raise your rates, slow down the process by collecting more information, and most of all trust that you are worth the rate that you quote.

There’s an old maxim in sales–that the first sale that you make is to yourself. And that is especially true when lawyers quote fees.  If you don’t believe you’re worth it, neither will your potential client.

The Wrong Way to Raise Rates

As the new year begins, you may be looking to increase fees for your legal services. All too often, lawyers who charge by the hour include the higher rates in an invoice at the beginning of February with no prior warning. Whether this strictly complies with the requirement to notify clients of material changes could be debated, but using this practice across the board is bad client relations regardless.

Your approach to raising rates for your existing clients should be individualized. If you have long-standing clients for whom you’ve raised rates in this way year after year with no complaints, you are probably on safe ground to continue doing so. But this should not be your default or automatic procedure. As consultants and business development coaches, we have seen the aftermath of this mistake too many times to count.

The following are a few recurring patterns to avoid. Most commonly, raising rates on already dissatisfied clients is risky at best and foolhardy at worst. If, for instance, you recently got a poor outcome in some aspect of a case or you haven’t adequately delivered on certain parts of a project, this is probably not a great time to charge more, especially without separate, explicit notice and consent from the client.

Second, if the work you do for an existing client is essentially unchanged from December to January, you are in danger of losing that client and future referrals by heightening fees without explanation. A classic example is the increasing of hourly rates for depositions, an especially unwelcome way to wish clients a happy New Year. The harder it is to differentiate the value of the work done before and after the new year, the more hesitant a firm should be to automatically raise rates effective January 1st.

In another familiar misstep, firms at times raise rates before having demonstrated any significant accomplishments for the client. When clients can’t point to tangible and positive differences made by the law firm, a fee increase is likely to engender some resentment.

Please don’t assume your client will immediately voice their displeasure at ill-timed and unexplained fee increases. This type of move can cause a fray in the relationship that becomes apparent down the line through passive aggressive behaviors and reluctance to pay future bills.

Demanding Payment When a CA Lawyer Can’t Withdraw From a Representation

What can California lawyers do when they haven’t been paid, but they can’t withdraw from a representation?  For example, suppose that the lawyer is representing a client in litigation and is being paid by the hour.  The client owes the lawyer money on the eve of trial.

California Rule of Professional Conduct 3-700 provides the starting point for analyzing when a lawyer may withdraw.  The Rule distinguishes between mandatory and permissive withdrawal.  The Rule expressly indicates that disputes about fees are a valid reason to seek withdrawal.  But as every California lawyer should know, you can’t withdraw from a representation even if you are owed money if such withdrawal would cause prejudice to the client.  And withdrawing from a representation on the eve of trial is pretty much the text book definition of causing prejudice to a client.  Thus, a court is extremely unlikely to allow the lawyer to withdraw on the eve of trial.

So what is a California lawyer to do when you can’t withdraw but still want to get paid?  Be very careful.  You need to be mindful that this is a very sensitive area and there are many ways to run awry of the ethics rules.  Lawyers understandably resent being forced to work for non-paying clients.  It can feel like the client is holding a gun to the lawyer’s head.  It can therefore be tempting for the lawyer to use the leverage associated with the upcoming trial to threaten withdrawal because many clients don’t know that their lawyer can’t withdraw from the representation under these circumstances.  Many clients assume that their lawyer could withdraw from the representation just as almost all service providers can stop providing services for lack of payment.  Your client may be misinformed about your ability or right to withdraw, but the State Bar isn’t, so don’t withdraw or threaten to withdraw from the representation.

But the fact that you can’t withdraw or threaten withdrawal doesn’t mean that you can’t discuss fees with your client.  Specifically, when lawyers are paid by the hour, are owed money, and are facing a situation where they can’t withdraw, they should consider changing to a flat fee.  For example, in the example discussed above, you could suggest to your client that you will accept a single payment or a series of closely-spaced payments to handle both the trial and outstanding balance.  If you do accept a series of payments, you will have better luck collecting the last payment if it is due before the trial concludes.

There are additional ethical considerations.  One is that any fee agreement you reach can’t be unconscionable.  Rule 4-200 prohibits a California lawyer from “enter[ing] into an agreement for, charg[ing], or collect[ing] an illegal or unconscionable fee.”  The Rule lists more than ten factors that are relevant to determining when a fee becomes unconscionable.  Thus, if you receive a flat fee to handle the trial work, you will need to monitor that the ratio of value provided is reasonable relative to the fee.  For example, if the flat fee is based on the assumption that the trial would last three weeks, and the case  settles after the first day of trial, you need to examine whether the flat fee is unconscionable.  Likewise, in this example, it would be prudent to keep track of how many hours you actually worked on the trial and determine whether the sum total of those hours is worth less than the flat fee paid by the client.  If the sum total of the hourly fees would be substantially lower than the flat fee paid by the client, you should at least consider refunding a portion of the flat fee.

This example illustrates the potential pitfalls of continuing a representation when you can’t withdraw from it.  Contrary to what some lawyers believe, you can and should discuss payment terms, even if you can’t withdraw from a case.  Don’t assume that you have to continue a representation for free because you can’t withdraw.  If this arrangement is ever reviewed by a fee-arbitration panel, a jury, or by the State Bar, you should assume that any ambiguities will be interpreted in favor of the client.  You should therefore carefully document any financial arrangement you reach and secure the client’s written agreement to it.  Moreover, if you find yourself in this situation and have to continue a representation with a non-paying or slow-paying client, you could do a lot worse than consulting with folks who are experts in legal ethics and collections issues involving law firms.