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    Four Signs It’s Time to Raise Your Rates (and How to Do It)

    Four Signs It's Time to Raise Your Rates (and How to Do It)

      Whether now or at some point in the future, your firm will eventually need to raise its rates to keep up with inflation and maintain profitability.  

      Think about it: food prices went up about 10% last year, plus roughly another 6% this year, and anyone who isn’t getting paid more is surely feeling the pinch. Businesses are, too. 

      Raising your rates can of course be tricky, especially in these tough economic times when you’re keenly aware of both your pocketbook and your clients’.  

      But raising your rates is far easier when you have all the information you need to set adequate rates and explain them to your clientele. With 2024 approaching, it’s a good time to analyze your firm's profitability and make necessary adjustments.  

      In this blog post, we’ll cover the following aspects of raising your firm’s rates: 

      • Identifying key indicators that signal the need for rate adjustments 
      • Using a data-driven approach to set competitive rates 
      • Creating a communication plan to retain clients after implementing rate changes 


      Ultimate Guide to Law Firm Business Intelligence

      Are you sure about running a law firm without regularly analyzing performance data?

      There are just certain things in life that you wouldn’t, even couldn’t, do without a little research and background information. Running a legal practice is definitely one of those things.

      Four key indicators that it’s time for your firm to raise its rates 

      If any of the following indicators describe your firm’s current financial situation, you may need to adjust your rates. 

      1. You’re unable to pay yourself and your staff consistently

      You and your staff not only deserve to make a living—you need to make a living to be able to continue practicing law!  

      If you find your firm isn’t bringing in enough money to pay all salaries consistently, then this is a major red flag that you’re not charging enough for your legal services.  

      2. You’re taking out loans to cover expenses

      If you have a line of credit (i.e., a business credit card) for your firm, and you constantly have to dig into it to cover basic expenses, this is a problem.  

      Yes, it’s normal to occasionally use your line of credit, and capital investments are an important part of growing your firm. However, continually sinking deeper and deeper into debt to cover day-to-day expenses is the opposite of financially sustainable. If you are using your line of credit to pay routine expenses, this is another sign that your firm needs to raise its rates ASAP. 

      3. You’re unable to pay down debt

      If you have made capital expenditures for your business, you should be able to pay down those debts consistently.  

      There might be months when you can pay down more or less of the debt, and you may have to average the monthly payments out over the year to assess your debt payment ability accurately. (Note that best-of-breed legal software like Rocket Matter offers advanced reporting to make tracking this kind of data a breeze for your firm.)  

      Overall, though, you should be chipping away at those outstanding liabilities regularly—and if that’s not possible for your firm right now, you should plan to raise your rates. 

      4. You’re unable to invest in your business

      By “invest in your business,” we mean paying for the tools, supplies, and services your firm requires. These could include: 

      • Software solutions that save you time and keep you organized 
      • A new computer, if yours breaks 
      • Necessary data security measures for your firm 
      • Additional personnel or professional advancement for your team 

      If you struggle to cover these kinds of business necessities and must operate on a shoestring budget, your firm’s rates are almost certainly too low. 

      Using a data-driven approach to set your rates 

      Identifying the right rates for your firm isn’t like playing pin-the-tail-on-the-billable-hour. Several factors go into tallying up a number. Take a data-driven approach by first considering the following: 

      • Local new lawyer value: First, determine your base-level value. You can do this by starting at the billable hour of any new lawyer in your area. This will likely vary depending on your area’s median income and cost of living. A good rule of thumb is to start around $100 (depending on your region) and work up from there.
      • Experience: This can consist of years of experience and notable legal work (e.g., appearing in front of your state’s supreme court). Add roughly $5 to $10 (or more!) for each additional year of experience.
      • Unique practice/specialty: If you have a specialization, you should be charging more—a minimum of $50 extra. Likewise, you should charge a premium for a unique legal service not commonly available in your region. 
      • Complications: Complicated matters with more moving parts necessitate higher rates. Complicating factors like complex data, high-level litigation, and more should increase your cost per hour. You can—and should—set different rates for different practice areas because complicated practice areas require higher rates. 

      All this information comes together to inform what a reasonable rate might look like for your firm. However, you should also look at historical data from your practice. For example: 

      • How long does it take to perform legal services?  
      • Are there processes you can streamline to make your rates more profitable?  
      • How can you add value to your clients by providing higher-level client care?  

      Tap into your legal practice management software to gather this information and augment your rates. 

      Creating a client communication plan for rate changes 

      Once you’ve determined that you’re changing your rates and how you’ll change them, it’s time to share that information. This is non-negotiable: your firm must always communicate that its rates are changing to any clients affected by these changes.  

      Here’s the info you must convey: 

      • The fact that your rates are changing, and by how much 
      • The exact date when the rate changes will go into effect 

      In addition, make sure to: 

      • Review client letters to make sure you’re allowed to increase rates for current clients 
      • Update your templates for future clients 
      • Update applicable auto-payments 
      • Contact your credit card processor to let them know the total your firm is processing might increase—this can help you avoid getting flagged for fraud

      This communication helps your clients feel valued and, in turn, helps communicate the value that you provide them.   

      Get the data you need to set profitable and sustainable rates with Rocket Matter 

      Rocket Matter’s software is designed to make your life easier by simplifying everything related to your legal practice.  

      Make invoicing, billing, workflow, project management, and document management effortless, and you’ll free up that much more time and energy for you to focus on practicing law. In fact, these tools have helped Rocket Matter’s clients boost their revenue by more than 20% on average. 

      Ready to learn how Rocket Matter can increase your profits and client satisfaction? Schedule your demo or start a 10-day free trial. 

      Ultimate Guide to Law Firm Business Intelligence

      Are you sure about running a law firm without regularly analyzing performance data?

      There are just certain things in life that you wouldn’t, even couldn’t, do without a little research and background information. Running a legal practice is definitely one of those things.

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