February 25, 2013Your Clients Don't Have Money: Should You Lower Your Fees?
By Cliff Ennico
"I work in a service business where I bill by the hour.
Because I work out of my home and have no overhead, my fees are pretty reasonable. I try to price my services at about 80 percent of what my closest competitors charge, and have had little trouble finding business at that level.
Recently, I've been having problems. My customers are telling me my fees are too high, and they are either performing this service themselves or foregoing having it done. Even worse, some of them are using my fees as leverage to negotiate even lower fees from my competitors. Some of my competitors are giving in and giving them what they want.
I realize times are tough and people are squeezing their pennies so hard you can see through them. But if I cut my fees any lower than they are, I may have trouble paying my bills. Is there anything I can do to turn the situation around?"
It used to be that you could justify your fees by citing your expertise or experience. Whenever someone asked me why I charge $500 for forming a limited liability company (LLC) when it took me only about an hour to do the paperwork, I used to reply, "Well, it's taken me 30 years to learn how to put together an LLC in one hour."
No more. People want the expertise, but they won't pay extra for it.
These days, I have to contend with online incorporation websites such as legalzoom.com that charge only a fraction of what attorneys charge for forming LLCs. Even worse, there is a large and growing surplus of unemployed young attorneys fresh out of law school who are desperate for work and will charge whatever the client is willing to pay.
Just yesterday, a client called me asking for my help in reviewing a set of documents for a franchise he was thinking of buying. Generally, I charge a $1,500 flat fee for this service, reflecting the five or six hours of time it normally takes me to review the documents, research the franchise online, prepare a memo to the client explaining the pitfalls, explain those pitfalls to the client, and negotiate an addendum or "clarification letter" with the franchise and its legal counsel.
When I quoted my fee and explained why I needed to charge what I charge, there was dead silence on the phone for a few seconds until the client said, "I only have $250 in my budget for legal services. What will that buy me?"
For a split second, I thought about laughing in this guy's face, hanging up the phone on him, or screaming at him about the amount of work involved in a project like this and the liability we attorneys have whenever we do less than perfect work. A year ago, I might have done just that.
After asking the client some questions to make sure he wasn't just bluffing, I told him that for $250 I would give him one hour on the phone and answer any questions he and his wife had about the franchise documents. I told him there would be no thorough review of the documents and that I would ask him to sign a letter saying that my obligation to him as a lawyer was limited to that one-hour phone call.
He gratefully accepted my offer, and of course, I actually ended up giving him slightly more than one hour on the phone.
So, how do you make sure you're getting paid what you're worth? Here are some ideas:
First, consider giving your clients a "menu" of options with fees attached, such as, "For X dollars, you get this, but for an additional Y dollars, you get the following extras." Real estate brokers have been playing this game for years: you tell them you cannot spend more than X dollars, they show you a bunch of junky houses in that price range, but then they show you some really nice houses that are just a few thousand dollars more than the limit you told them. When people see what they are not getting by "splitting pennies," some of them - the ones you want - will migrate to your higher fee structure.
Just be sure you clarify in writing the limited service your client is getting because clients have a nasty habit of forgetting the details once the work is done.
Second, consider going "high end" with your service and pitch to only those clients you know can afford to pay a reasonable fee. Just be aware that all your higher-priced competitors will be pitching to the same few people.
Lastly, if all else fails, add new services that people will pay any amount of money to have done for them, no questions asked. People won't pay top dollar for an LLC, but if they need help fending off an IRS investigation . . . ?
), a leading expert on small business law and taxes, is the author of Small Business Survival Guide
, The eBay Seller's Tax and Legal Answer Book
, and 15 other books. COPYRIGHT 2013 CLIFFORD R. ENNICO. Permission granted for use on DrLaura.com.
Posted by Staff at 12:03 AM