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Jan Copley
Certified Practice Advisor
Atticus, Inc.

530 South Lake Avenue, Suite 250
Pasadena, CA 91101
(626) 696-3145
(626) 421-6747 (fax)

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If It’s Too Good to Be True…

August 15, 2012

Filed under: Growing Your Business,Practice Management,Prepaid Legal Plans,Pricing — @ 8:00 am

Even lawyers get scammed. Steve Riley, my friend and fellow Atticus practice advisor, forwarded a link to a recent Wall Street Journal Law Blog article, “Despite Warnings, Lawyers Still Fall for Collection Scam.” Apparently, lawyers can be just as easily sucked into promises of easy money as everyone else. So, if it sounds too good to be true, it probably is.

What about prepaid legal? The article got me thinking about other financial arrangements, which, while not scams, can trap attorneys. Specifically, I found myself thinking about prepaid legal plans. Most prepaid legal plans require attorneys to either (1) provide their services at discounted rates or (2) remit a significant percentage of the amount collected to the plan.

The reason why lawyers choose to participate in prepaid legal plans is that they think they’ll see more clients and generate more revenue. That may or may not be true; some plans refer potential clients fairly consistently, while others do not.

You have to ask: will you make money? Generating more revenue may not be what you’re looking for: rather, the question to ask is, will you generate more profit? And the answer may be no. If you’re running your business with a 30% profit margin (which, according to the Los Angeles County Bar Association, is the average profit for a law firm) and paying 40% of your revenue from the matter to the lawyer referral company, you’ve just signed to work at a loss!

Alternatively, if the plan limits the amount you can charge for certain work, make sure that you’ll make money at that price. If the plan limits what you can charge for a specific transaction to say, $1,500, and it costs you $2,000 to provide that service, you’ll be losing money on the deal.

In either case, it seems to me you’re better off using the time you would spend on prepaid legal matters marketing for clients who will pay your full rate.

What quality client will you see? Another concern I have is that a prepaid legal plan member won’t be the quality client you want — you’ll be seeing individuals whose primary concern may be to get a discount. In my experience, people who choose their attorney based only on price are not great clients. As a rule, they’re not great referral sources, either.

Please let me know how this helps you!