Flat fee attorneys have an advantage when it comes to serving clients and generating revenue. If you’re wondering what a flat fee attorney is, they are attorneys who embrace alternative fee arrangements by offering flat fee options.
When I opened my law firm in 2008, I only had one rule: No hourly billing. Of course, throughout my career, I’ve been encouraged to utilize the hourly billing model. However, I’ve come to dislike it for three reasons:
- It can create an air of distrust between attorney and client.
- It might mean you only make money when you’re “on the clock.”
- It doesn’t account for the value you provide to your client.
We know hourly billing has limitations. Flat fees are much better from a business standpoint, and more importantly, flat fee attorneys can provide clients a better client-centered experience.
Why charge flat fees?
Flat fee attorneys can cater more specifically to clients’ unique needs. Furthermore, flat fees add value to law firms’ services. An increased value proposition to clients generally means more clients will be interested in working with you.
By adding a flat fee option when it’s advantageous for your cash flow, different kinds of clients will seek your expertise. This expansion of your prospective client base wouldn’t be possible by solely sticking to the traditional hourly billing model.
So, are flat fees beneficial for you, your firm, and most importantly, your clients? Below are some reasons you should consider making the shift.
5 ways flat fee attorneys earn more
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1. Flat fees promote efficiency
Whether you’re a flat fee attorney or not, law firms need to be as efficient as possible to keep costs low and cash flow as high as possible. Being efficient also contributes to providing clients with a client-centered experience, since inefficiency would mean that clients are paying more than they should for your legal services. But when you’re earning a premium for every hour you spend on a task, why would you be compelled to work faster? Billing by the hour can reward inefficiency by inflating earnings for firm staff who take the longest to get things done.
What are the different types of legal fees?
Many lawyers charge by the hour, but lawyers can adopt many alternative legal fee models: flat fees, contingencies, subscriptions, and unbundled legal services. The billable hour is far from the end-all-be-all of legal fees. Finding the right fee arrangement for you and your clients is key to running a successful law firm.
2. Flat fee attorneys are rewarded for embracing technology
Lawyers are constantly investing in technology that makes them more productive. Document automation, practice management software, and E-discovery are all examples of this. But investing in technology that makes you more productive can harm your bottom line when you bill by the hour. Sure, you can use that extra time to take on additional matters, but you can still only bill for 24 hours in a day (unless you’re billing impossible hours). Flat fee attorneys will see the financial benefits when implementing tools that optimize workflow.
With the right tools, lawyers can automate tedious, non-billable tasks. Bring automation to your firm by watching Clio’s on-demand webinar How to Use Automation to Increase Efficiency at Your Law Firm.
3. Flat fees reduce administrative work
Call it the “bureaucracy of billing:” Billing by the hour necessitates an army of bookkeepers and the effort required to meticulously pore over Work In Progress reports and invest in simultaneous time tracking. Even though technology exists to make this easier, why would you want to create additional work for yourself? Flat fee attorneys can optimize their firms with simple, up-front payments from clients.
4. Flat fee attorneys have a competitive advantage
In a world where everyone is billing hourly, distinguishing yourself from your competitors by offering peace of mind and cost assurance of flat fees can significantly benefit your firm.
From start to finish, everyone wants a straightforward legal experience. While you can’t control every twist and turn of a client’s case, you can control the billing process. Flat fee attorneys have more freedom to lead clients through a straightforward billing process. They can start from the very beginning of the billing process by outlining an easy-to-understand alternative fee arrangement, such as a flat fee model. No need to leave clients playing an anxious hourly-billing-guessing game as to how many zeroes their bill might have.
For this kind of convenience, many clients will be willing to pay a premium. Remember, their time is valuable too. No one wants to pore over a sizable invoice they don’t understand.
5. Flat fees establish attorney-client trust
If clients know they’re paying for every phone call, email, meeting, or minute of your time, they’re likely to be a lot more apprehensive about contacting you to share information. If there’s no surcharge for client communications, there’s a higher likelihood they’ll engage. This means you’ll have a higher chance of securing information that will make your job easier.
The right billing solution depends on your practice and the needs (demands) of your clients. There are alternatives to traditional hourly billing. And being flexible to the right billing structure for your practice will make you a better lawyer and keep your clients very satisfied. It’s all a part of the flat fee attorney philosophy.
Familiarize yourself with the practical and ethical issues associated with flat fee billing via Clio’s on-demand webinar, Flat Fees for Fun and Profit.
How to implement flat fees the right way
It’s difficult to challenge the default. Especially when it comes to the billable hour—I can already hear the reservations:
“What if the matter becomes more complicated than it seems on the surface?”
“What if additional research is required to complete the job?”
“What if I work 100 hours on this case? My fee was only 30 hours if calculated hourly, and I’ve now lost all that money that I could have made!”
If you’re asking those questions, it’s your lucky day because I’m going to give you five ways to protect your downside with attorney flat fees.
1. Stop thinking in six-minute increments: Start thinking in terms of flat fees
There once was a cruise ship that had broken down at sea. The engines were fragmented, and none of the ship engineers could figure out what was wrong.
To fix the ship, they called in the foremost expert on cruise ship engines. When he arrived, he took a look around and said, “I can fix this, but it’s going to cost you $10,000.”
“No problem,” said the ship’s captain. He knew what the cost would be if they had to refund all of the passengers’ fees.
The expert then began feeling around on the outside of the engine, listening here and there for about 5 minutes, and then he stuck his hand out and said, “give me a hammer.”
The ship’s engineer gave him a hammer, and the expert pinpointed a spot with his finger and hit that spot three times as hard as he could. By the time the third blow struck, the engine had roared back to life.
“Thank you!” cried the captain.
“No problem,” said the expert. “That will be $10,000.”
“But why should I pay you $10,000?” the captain said. “You only did five minutes’ worth of work.”
“It cost you $50 for the labor, $9,950 to know where to hit the engine.”
Our work isn’t time-sensitive—it’s expertise-sensitive. When you start thinking in terms of value provided it’s much easier to set a price that reflects the actual value to the client, even if it only takes you five minutes.
2. Flat fee attorneys need to be clear on the scope
You can charge a flat fee for any legal work, as long as your scope is clear and realistic.
For example, let’s take litigation, as that’s probably the area people think is the most challenging area to produce flat fee arrangements.
Let’s assume you’ve done the type of case presented to you before (business dispute, personal injury, divorce, bankruptcy, etc.) and you’re aware of the resources involved. One way to set the fee is to assign one all-encompassing fee and set out everything the work entails.
For example, you might propose a $50,000 fee that includes up to five depositions, one motion for summary judgment, and one trial. With that understanding, the scope will have to increase and so will the fee.
You can also offer an a-la-carte option. A deposition is going to cost $1,500. Motion for summary judgment is going to cost $7,500. And on and on.
The key to protecting your downside is to be aware of scope creep. Think about what the tripwire might be to identify when the work begins to get outside the agreement. If this happens, either stop that work or execute a change order to incorporate the additional labor required.
3. Do what’s necessary, and no more
I don’t care who you are—if you tell me you haven’t padded the billable hours on a case from time to time, you’re lying.
The great thing about flat fee agreements is that it allows you to eliminate the fluff and only do what’s necessary to get the job done.
Already have a motion for summary judgment with very similar issues in your form bank? Use it to write your new motion and save yourself four hours.
Have a hearing a junior associate can handle? Send them out to do the work.
Know a phone call to opposing counsel will get the case resolved in 10 minutes? Make the phone call.
In the cruise ship example, it would have been easy for our expert to run 20 diagnostic checks. But he didn’t need to. He just fixed the problem.
Flat fee attorneys can do the same.
4. Track your work
You know how much time you have to work in a day. If you’re working on lots of flat fee cases that take up all of your time, and you can’t pay the bills, then you aren’t charging enough.
Furthermore, when it comes to staff and associate attorneys, you should require them to track, generally, what they’re working on and for how long. Time tracking will prevent them from overworking a case when it’s not necessary. It will take everyone some time to get used to, though it doesn’t have to be a headache. Creating systems to track time better will help the flat fee model thrive at your firm.
5. Flat fee attorneys need the ability to see the forest
In a perfect world, your fee projections would be accurate every time. But the world isn’t perfect, and every once in a while, you’re going to get a case that you priced out incorrectly.
For many flat fee attorneys, one bad fee projection is the end of flat fee billing. All they see is that one case where $50,000 worth of work was completed, but they received $30,000.
The good news is, if you see the forest through the trees, you’ll come to find that for every case you have that loses you money, you’ll have nine or 10 or 20 that make you a significant profit. For new flat fee attorneys, this will simply come with experience.
Ready to define your flat fee rates? Feel confident about your flat fee models by reading how to determine the price of flat fee legal services.
Final thoughts on flat fee attorneys
Flat fees in law firms make the most sense for both attorneys and clients. They’ll make you more money, untie you from your desk, and create happier clients.
I’m challenging you to commit to presenting a flat fee option to the next potential client that walks through your door. I think you’ll be surprised by the results, and might even start considering yourself to be a flat fee attorney.
We published this blog post in August 2015. Last updated: .
Categorized in: Business