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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.
Related Resources:
- Small Firm Start-Up: What Tech Do You Need? (FindLaw's Strategist)
- Small Firm Startup: Cheap Malpractice Insurance is a Must (FindLaw's Strategist)
- Small Firm Startup: Straight Out of School? 4 Tips (FindLaw's Strategist)
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