How to Set Your Billing Rates

The information provided and the opinions expressed in this monograph are solely those of the author. Neither the State Bar of Texas nor the author are rendering legal, accounting or professional advice and assume no liability in connection with the suggestions, opinions, or products mentioned.

(Jump to a section of this page)

• Introduction
• Formula for Solo Practitioners
• Conclusion

Introduction      back to top

Only after you have determined the cost of each billable hour, will you be able to structure your fee arrangements. The calculations show you where the break-even point is, as well as what your profit margin is.

Following is a sample calculation based on a solo practitioner with a monthly salary of $5000 and a secretary at $2000 per month. The office rent is estimated at $2500, a part-time runner/clerk at $500 and taxes, insurance, supplies, etc. at a total of $2600 per month.

Formula for Solo Practitioners
(May be Adjusted for Groups)      back to top

    Total monthly expenses:          $12,600.00

    less attorney's salary:          $ 5,000.00
                                    ___________

    Overhead costs:                   $7,600.00

    divided by billable hours:        160 hours

    Overhead cost per billable hour      $47.50

    plus attorney's rate (5000:160)      $31.25
			             __________

Total cost per billable hour:            $78.75
                                     ==========

Conclusion      back to top

The danger in this analysis is that it makes no allowance for billing adjustments, such as write downs or write offs. Furthermore, it requires 37 hours to be billed each week.

Therefore, while it is absolutely necessary to know the cost of each billable hour, you must take the collectibility variables into consideration when setting your fee.

In the interest of good client relations, it is well advised to communicate your billing practices with the client before entering into an engagement. This will not only promote good client relations, but it will also increase the collectibility of your accounts receivable.