This week we are sharing a pricing strategy tip that will help you avoid fee disputes and push-back on your invoices.

Every month, Members of our Practice Accelerator Membership get a specialist coaching session in business development, pricing & project management, legal technology or finance & accounting. Last week, we shared this business development tip. This week, we are continuing the series with a tip from Aileen Leventon, the Pricing & Client Value coach inside the Membership.

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In her recent coaching session, Aileen shared some great advice on ways to develop flat fees, but one nugget that really stood out was this: fees are not prices. Do not ever forget out-of-pocket expenses when you are quoting the cost of your services to a client.

It seems obvious, right? Of course, there will be expenses! But clients and attorneys perceive fees and expenses very differently. You must think about it from your client’s perspective, not your own.

Let’s say you quote the client $10,000. You are thinking about the fee you are going to collect: $10,000. The client is thinking about the price they are going to pay: $10,000.

If in this matter, you incur $2,000 of legitimate, reimbursable, out-of-pocket expenses. What does that mean? You send your invoice for the fee plus disbursements. The client writes a check for $12,000. You pocket your $10,000 and disburse the other $2,000.

You say to yourself; it was a $10,000 fee. The client is saying, my lawyer costs me $12,000, and it was only supposed to be $10,000! That is a 20% variation between what the client thinks it costs and what you are thinking you charged the client.

The Real Cost of Your Services to Your Client

To your clients, out-of-pocket expenses are part of the price they will pay, so you need to provide estimates for them. Expenses may be variable, so either you build in a cushion as you're discussing the variation in the fee and the price, so that you don’t end up being out-of-pocket, or you agree to pass the expenses on directly to the client, if doing so makes sense.

For example, you could say, "there are going to be out-of-pocket expenses. I'll forward them to you, and you pay them directly." Then, when thinking about what they paid you, all your client focuses on is the $10,000 fee.

On the other hand, you may decide that, for timing or other reasons, you will be responsible for paying the third-party expenses you incur on behalf of the client’s matter. If that is going to be the case, be transparent. Remember, clients value predictability. Provide reasonable estimates and communicate early if actual expenses look like they are going to exceed what you estimated.

In either case, be clear and upfront with your client. Maybe you can lay out the options for handling expenses, and let your client decide. Regardless of what you decide, just remember that you have got to be sure the client understands the difference between the fee they are paying for your professional services, and the payment or reimbursement of necessary out-of-pocket expenses. They are not the same thing.

And that’s it for this week’s tip. If you missed the Ideal Client Worksheet from last week, you can download it here.

We will be back next week with another expert tip on building a profitable and productive law practice. Don’t miss a tip, click here to have it delivered to your inbox every week.

Thanks a lot everybody!