Here’s the second part of my post on alternative fee arrangements — if you missed the first one, you can read it here.

Know Your Numbers Before You Set Your Price

Key Performance Indicators – KPIs – are quantifiable measurements that help you gauge the progress you are making toward realizing the critical success factors for your law firm to flourish.

Some examples of typical KPIs for law firms include:

• How much money you need every month to make payroll and keep your doors open

• How many new clients you need to bring in every month to break even

• Your average profit margin per client

• The types of cases that produce the highest profit margin

• The percentage of people who visit your website that end up calling your office

• The percentage of prospects that call your office and then come in for a free consultation

• The percentage of prospects that come in for a free consultation and become clients

To be useful to you, your KPIs must reflect the goals of your organization and they must be measurable. Done correctly, KPIs will help you determine what you need to charge to achieve and maintain profitability. Your KPIs provide the critical data you need to drive good decision-making.

Having the Pricing Conversation with Clients

Rosen says — and I agree — that talking to clients about money should be like breathing. It’s something you need to do all the time. Most attorneys shy away from the money conversation, because they think it is a poor reflection on their reputation if clients don’t automatically “get” the value they are providing and are willing to pay for it.

This is nonsense. Most clients are not experienced in legal matters and are unsure how to value your services. You have to educate them. You need to have pricing discussions not only at the initial consultation, but at every step along the path of your engagement. You want them to feel informed about what they are spending. Transparency here is the goal. This helps eliminate surprises on both sides and gives your clients better insight into the value they are truly receiving for your services.

Don’t save the money talk for when bills go unpaid. By then, it is almost too late to establish value in the client’s mind. Instead, make it your practice to understand each client’s needs and tailor a pricing strategy to meet those needs. Done right, a tailored pricing strategy can become a competitive advantage for your firm and differentiate your brand in the legal services marketplace.