The Case for Setting a Low Hourly Rate - Strategist
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The Case for Setting a Low Hourly Rate

Some call it a race to the bottom.

Some say that you're a lawyer, and you deserve to be paid $300 to $500 an hour.

Alright, but what percentage of the population can afford to pay such a rate? And can you afford to charge less, while still making a living and paying off your student loans?

What's the sweet spot?

The Case for a High Rate

Susan Cartier Libel, at Solo Practice University, presents the case for market rate, even if you are a new solo or straight out of school. She counsels counselors to check the going rates and go with them.

Why? Because charging less gives clients the impression that you're worth less. Why is this lawyer cheaper? Because he or she is a fresh-faced rookie who has no idea how to practice law.

Plus, by joining the "race to the bottom," you'll alienate other attorneys and depress the market rate.

The Case for a Low Rate

You know what's great about fresh-out-of-schoolers? They have no preconceived notions about how law must be practiced and law firms must be run. They're more open to alternative fee arrangements, adopting cutting edge and cost-saving technology, and most don't feel like they deserve $500 an hour.

The thing is, if you're new to practice, you don't have a 30-year trial record to trumpet to potential clients. They're going to look you up, realize that you've only been licensed for a year or two, and if they're still willing to go to you, they're going to expect a lower rate. Why? Because if they could afford the market rate, they'd go with the experienced attorney.

Clients know that they get what they pay for, at least in terms of experience. And the low-fee market is the easiest to tap into. Does that mean a rate of $100 an hour, or $50 an hour, is sustainable? Probably not, though it'll depend on your overhead.

As for irritating other attorneys, we really doubt anyone is going to toss a drink in your face at the next mixer because your hourly rate is too low -- you're probably signing the clients that can't afford the veteran attorney's rates anyway.

Sustainability

Of course, it's called "the race to the bottom" for a reason -- the lower the hourly rate, the less likely you are to succeed financially. Eventually, if you keep cutting your rate, you'll end up in the red, and you'll be losing money on cases.

You need to factor in the obvious overhead (office rent and supplies, legal research services, staff, utilities) and the not-obvious overhead (deadbeat clients) when setting your rates. One hundred dollars an hour may be sustainable if you maintain a Spartan office (or no office at all) and use the law library's legal research services, but what happens when a client goes AWOL or simply refuses to pay? Perhaps you can compensate for a low rate by requiring high retainers?

It's not wise to charge an unsustainably low rate, but it's also not realistic to expect clients to pay market rate when you're new to practice. There's a sweet spot in there somewhere. As is the case with all businesses, the trick is finding it.

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