We have recently had an enquiry from one of our locums who has been very insistent that he ought to have the right to know what our client is charging their clients in order for him to pitch his hourly rate at a significant proportion of this so that he benefits from the hourly rate that the client has agreed with their clients.
Should you be thinking about the rates a client is charging their client when setting your own hourly rate if you are working as a locum or a contractor?
The answer to this is no for the following reasons:
You cannot base an hourly rate on the hourly rate being charged by a client.
This is a fundamental rule of locuming. It is absolutely none of your concern what deal a firm has reached with its own clients before they have looked to sub-contract any of the work to you. Why would it be? One of the reasons the firm exists and has a requirement for you to assist them as a sub-contractor is because they have managed to obtain the client, and whatever price they’re charging that client is immaterial because they still need assistance from you.
Your hourly rate does not impact on the hourly rate being charged by the client.
Take the example of a conveyancing firm. They have agreed a price with their client of £800 for the sale of a property, and £900 for the purchase of a property. Total cost £1700 plus VAT. One of their fee earners who was working on this goes off on sick leave unexpectedly and the firm need a locum to come in and cover the work. The firm may have 12 matters to deal with during the three weeks that their fee earner is off sick, but similarly they may just have the one. The locum is likely to cost them at least £1000 per week plus agency fees, and if they just had the one case then by the end of the three weeks that firm will have lost £1300. Similarly if the practice had 25 cases that the locum was dealing with over that time and the locum completed them from start to finish, then the firm would be in profit at the end of the week. However the requirement for a locum remains the same – the firm still need a locum regardless of whether they have one case or 25 cases, and the cost of the locum will remain the same regardless of the number of files.
Locums get paid to cover work or to work on a consultancy arrangement, and clients take the risk that there might not be any work coming in.
This is mostly true, although it does not apply as much to ad hoc arrangements with consultants, but if a client has four cases outstanding in their litigation department and needs the assistance of a locum, then if they make £25,000 on those cases and the locum has done 30 hours worth of work at £50 an hour, then the firm make a profit. However if three of their clients go bust and don’t pay them and you as a consultant still do the work, then you get paid and the firm make a loss. The two never equate and firms do not tend to be in a position at the start of an arrangement to know how much money they’re going to make on a particular project.
The client has managed to get the business into their firm.
You as a locum or consultant are simply going into a firm in order to provide legal services on a specific matter. You have no idea how many years that firm have had to woo that client in order to get them to give them the work. You don’t know what marketing costs they’ve spent, how many times they’ve lost to the client at golf, how many times they’ve done work for the client and lost money simply to attract them on a bigger case, what efforts have gone into recruiting that client in order to get them into the practice. Some consultants seem to think that this is a very simple matter and that they should be getting a high percentage of any money that a client gets, but I very much doubt any of them have ever been in business themselves and seen how hard it is to attract and retain clients over a period of time. If they had they would never even ask the question as to whether or not they should be getting more money…
Firms have overheads
Locums and consultants tend to have a few overheads, including providing computers, their own office space at home if remote working, and sometimes access to legal sources online, but they do not have the overheads of a solicitors firm, which include staffing, marketing, premises, residency costs, insurance (huge amounts of money), advertising, expense accounts and paying investors a dividend.
If a firm are making £300 an hour on a client and they are paying out £50 an hour for the locum to cover the work, then unless the locum is specifically just working on the billable hours that are being put through to the client, the two figures never actually stack up because the client only pays the billable hours, whereas the locum or consultant gets paid for actual work undertaken. This will include non-billable hours and other bits of work as well, that the firm cannot recover from their client (assuming their client pays). The other element of the £300 an hour that the client of the solicitors firm is paying will go on the other costs of the firm, as well as providing a profit and living for the owner of the practice. This isn’t a hard concept to grasp, but we do have a conversation every now and then with consultants, some of whom have been around for a very long time, but who are absolutely convinced that if a client is being charged £300 they ought to receive £150 of it because the firm aren’t doing the work and they are.
In summary, you should be aware that when you’re doing locuming or consultancy work your hourly rate is the hourly rate that you want to charge to firms and businesses in order to generate an income or profit for yourself, and that you should never ever look at what anyone else is getting out of the deal. Over the years I’ve regularly fired accountants who have worked for our business when they have attempted to put their prices up when our turnover has gone up. This approach has infuriated me numerous times because I simply fail to see the correlation between the two. I work hard in the year and so do my colleagues and if we generate more turnover we want to see the benefit of it, not hand it over to our accountant!
The same applies with locums and consultants. Just because someone else is making lots of money out of something doesn’t mean that you have to increase your prices to benefit from it. It generates lots of bad feeling towards you and will severely hamper your chances of getting future work…