Art of Accounting: Quoting hourly rates

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Clients buy something they need or solutions to problems, not hours. Here is a situation that has actually occurred in a client’s legal matter.

A person (let’s call him Jack) was arrested and charged with a very serious crime that he did not commit. He called his business attorney at her home at 11:20 PM and asked her for help. She referred him to “the best” criminal attorney she knew. Five minutes later the attorney (let’s call him Robert) called Jack, found out his story, and said he would make a few calls and get back to him within the hour. He called back and said he would meet him at 7:00 AM at the jail. He said he called the police, couldn’t reach the prosecutor, spoke to a bail bondsman, and he would have to wait until the morning.

When Robert showed up in the morning and after he spoke with Jack, he told him he would take the case, but his fee would be $700 an hour and he needed a $10,000 retainer to get started. Jack started to question how much time Robert was going to put in, was he paying for that meeting and last night’s calls, would he get charged for other phone calls and waiting time in court, and how much time would it take the attorney to arrange for bail and get him released? Considering that Robert was awakened after 11:00 at night, had to make numerous phone calls and was at the police station at 7 AM, he was a little upset about the tenor of the conversation from his client and felt it was probable he would have problems getting paid if this case went further, which appeared likely.

Here is a second scenario. The attorney (Susan) made the same nighttime calls and showed up in the morning the same as Robert. When she quoted her fee she said it would be $10,000 through the first court hearing and would include arranging to get him released, assuming it wasn’t more serious than she had been told and led to believe. She also told Jack she would introduce him to a bail bondsman who would work out the financial details of his release, the bail bondman was well-known with a good reputation, and she would oversee what he did. She also said that after that was done and she had a better handle on the situation and where the case might go, she would discuss her fees going forward.

Question: Who was more likely to get the client and have a continuing relationship?

Question: How do you quote your fees? The way Robert did or the way Susan did?

Question: If you were Jack, how would you feel about each attorney?

Takeaway: Relate the above situation to how you quote your fees. Everything you do has a value to the client, and every client certainly has the ability to afford your services. Do you sell the client open-ended hours or satisfy their needs at a price they deem reasonable and worth your charge?

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Ed is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or emendlowitz@withum.com.

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