Our Law Firm Client Hadn’t Raised Its Rates in Years. We Showed Them What That Decision Was Actually Costing the Firm.
By ProfitWise - a Visa Business Plans company
One of our law firm clients had several clients who had been with the firm for years.
The relationships were important to the partners, and some of those clients had been paying essentially the same rates for a long time.
Meanwhile, almost everything else had become more expensive.
Attorney and staff compensation had increased. Technology costs were higher. Insurance, outside services, and other operating expenses had also changed.
The partners knew they probably needed to revisit their rates. They just kept postponing the conversation.
They worried longtime clients would interpret an increase differently than a new client would. These weren’t simply names on an invoice. They were relationships the attorneys had spent years developing.
Because we handle the firm’s specialized bookkeeping, we could help them understand what maintaining those older rates was actually doing to the business.
The Firm Was Still Making Money
That's what made the problem easy to ignore.
The firm wasn’t in financial trouble. Revenue was healthy, clients were paying and the business remained profitable.
But when we compared the financials over time, we saw that some of the firm’s costs were increasing faster than its rates.
That meant the economics of the work were gradually changing even though the amount being billed to certain clients hadn’t changed much at all.
During our monthly meetings, we could walk the partners through those changes in plain English.
Instead of simply telling them that expenses were higher, we could show them how much more it now cost to operate the firm and how that was affecting what remained after those costs were paid.
We Didn’t Assume Every Client Needed the Same Increase
A blanket rate increase wasn’t necessarily the answer.
Different clients use the firm’s resources differently.
One longstanding client might require significant partner involvement. Another might have much of its work handled efficiently by associates and staff. Certain matters may involve more administrative support or outside costs than others.
So we wanted to understand where the pressure was actually coming from.
If a client was still paying a rate established years earlier while the cost of providing that client’s legal services had increased considerably, the partners needed to see that.
They could then decide whether maintaining preferred pricing for that relationship still made sense.
There is nothing inherently wrong with giving a valued client favorable pricing.
But it should be a decision the partners understand financially.
Then We Looked at What Would Happen if They Did Nothing
This was where the conversation became more interesting.
The partners were focused primarily on what might happen if they increased their rates.
Would clients complain? Would someone leave? Would it damage a longstanding relationship?
Those were reasonable concerns.
But there was another side of the decision that deserved just as much attention: What happens if the firm doesn’t increase its rates?
Using the firm’s existing financial information, we could look at what might happen if compensation and operating expenses continued increasing while rates remained essentially unchanged.
If the firm wanted to maintain the same level of profitability, the difference would have to come from somewhere.
In many cases, that means doing more work.
Now we could estimate how much additional revenue the firm would need to generate simply to compensate for higher costs.
For attorneys who already had demanding workloads, that put the decision into a very different perspective.
Sometimes Keeping the Same Rate Has a Cost Too
Imagine that avoiding a modest rate increase means the attorneys need to generate significantly more billable work next year just to produce the same financial result.
That doesn’t automatically mean the firm should increase every client’s rate.
But it gives the partners information they didn’t have when the conversation was simply, “Will our clients be upset?”
They can now weigh the value of maintaining a particular rate against the financial impact of doing so.
For an especially important relationship, the partners may decide the existing rate is worth maintaining.
For another client, they may determine that an adjustment is overdue.
And in some cases, the analysis may show that the problem isn’t the standard rate at all. It could be discounts, write-offs, realization, staffing or the amount of partner time being devoted to certain work.
That’s why we wanted to understand the numbers before deciding what needed to change.
Good Bookkeeping Gives the Conversation Context
Because we handle the firm’s bookkeeping month after month, we aren’t looking at one isolated profit-and-loss statement when a question like this comes up.
We can see how payroll has changed, how overhead has changed and how the firm’s financial performance has evolved.
That history gives us the foundation for a much more useful conversation.
And when the partners want to understand what different decisions could mean going forward, our Fractional CFO work allows us to take the analysis further.
We can model different scenarios, look at the effect of potential rate changes and help the partners understand how much additional work the firm may need to generate if rates remain where they are.
The decision still belongs to them.
Our job is to make sure they understand the financial consequences of each option.
Loyalty and Profitability Don’t Have to Be Opposites
Our client wasn’t wrong to care about longtime relationships.
Those relationships helped build the firm.
But keeping a client’s rate unchanged year after year is still a financial decision, even when nobody consciously thinks of it that way.
Once the partners could see what their costs had done over the same period, they were in a much better position to decide where maintaining an older rate made sense and where it deserved another look.
For some clients, they may willingly accept a lower margin because the relationship is valuable for other reasons.
For others, the numbers may show that the firm has been absorbing increasing costs for far longer than the partners realized.
Either way, they are no longer making the decision based only on the fear of how a client might react.
They understand what keeping those rates unchanged is costing the firm too.
