This month we asked our experts their opinions when it comes to flat rate or fixed fee billing arrangements.
William Goren (WG), Allison Shields (AS), Dennis Kennedy (DK) and Greg Siskind (GS).
How did you come to the decision to offer flat rate or fixed rate billing?
WG: In certain areas of my practice, it is an expectation of clients. Some clients also like the security of a fixed fee. I have been able to come up with fixed fees with respect to training, which clients demand, and file review and the generation of an expert report. Otherwise, understanding the rights of persons with disabilities is so complicated that it can be hard to determine a fixed fee. Also, since the ADA is a fee-shifting statute based upon an hourly rate, fixed fees can be problematic with respect to the attorney ultimately getting reimbursed for any work performed.
AS: I am not currently practicing law, but when I started my consulting practice (working with lawyers and law firms on practice management—including billing—marketing, productivity, and business development), I decided I did not want to charge by the hour. I always hated it as a lawyer, and I think it creates conflicts between lawyers and their clients. I bill my clients on a monthly retainer basis, or on a per-project fixed fee.
DK: There were several factors. I had been working as in-house counsel for many years and had no desire to get back on a billable hours hamster wheel. I personally prefer flat-rate billing for every other service I use. I’d rather discuss value rather than rates and hours. And I’m planning to practice only on a part-time basis. I practice in the areas of information technology transactions, payment tech, digital transformation and innovation law, and related arbitration and mediation. None of those are areas where traditional hourly billing “fits the brand.”
GS: Our firm is an immigration boutique with 11 lawyers. We have billed on a flat fee basis for virtually all of our work for the entire 25+ years our firm has existed. I hated hourly billing when I worked at the beginning of my career in a large law firm and decided to go with a fee menu as soon as I opened up this firm in 1994. It’s pretty common in immigration law so there was little resistance from clients.
How has it benefited your practice?
WG: It gives clients alternative fee options for them to consider without compromising the economics of my practice.
AS: Billing on a monthly retainer or a fixed fee is easier for my clients to budget and to understand what they are paying and when. Filling out timesheets is a time and energy drain and billing by the hour just invites questions into why something took you that amount of time to complete. It also doesn’t reward efficiency or proper use of technology; it promotes waste. Using fixed fees and retainers, I don’t have the headache of spending precious time tracking my time—instead, I can use that time to focus on my clients or to build my practice.
DK: No timesheets or time tracking! The big benefit is turning the client conversation to value provided and lessening their anxiety about the meter running.
GS: Yes. We have very high collection rates compared to hourly billing firms because clients know from the start what the work is going to cost and has already decided that the charge is fair. It also puts incentives in the right place. If we find a more efficient way to do the work and we can provide the same high-quality service with less lawyer/paralegal time, we reap the rewards. Hence, we’re leaning more and more on automation.
How did you identify which projects to offer as flat rate vs. hourly?
WG: It takes a long time of handling specific matters before you can figure out what an appropriate fixed fee is. A lot of people will say that the best way to do a fixed fee is by value and not by a conversion of estimated hours. The problem with that is it can be terribly hard to figure out the value. Given a sufficient number of repetitions, the conversion approach can work. You can then modify upwards or downwards as you sense what the value is over time.
AS: I don’t offer any hourly services, although I will sometimes price by the full or half-day if I am doing on-site meetings or projects with clients.
DK: The nature of what I do and want to do makes flat fee billing appropriate to offer for every matter. I also have a good idea, from many years of experience and my own data, about what work is required for most projects.
GS: About 95% of our work is done on a flat fee basis. The only matters done hourly are ones where the work is something we don’t handle often or a client is just consulting with us and is not clear how much they’ll be utilizing our services.
What are some of the biggest challenges when implementing flat rate or fixed fee projects?
WG: In my area of the law, no two cases are the same even if the same disabilities are involved. There may be issues with respect to fee-shifting statutes when it comes to fixed fees.
AS: Some of the biggest challenges are learning how to manage projects efficiently and effectively, and how to price appropriately. It takes some time to get fixed-fee pricing just right so that it makes sense for the client as well as the service professional. It requires a change in mindset away from the idea that an hour is worth a specific amount of money or using the hourly rate as a measure of whether the fee is good or bad. Of course, as a lawyer, your fee always has to be reasonable, but that isn’t based solely on how long it takes to complete something. Offering alternative fees that are based on hourly rates doesn’t eliminate many of the problems inherent in billing hourly, and that shift takes some getting used to.
Another challenge with fixed-fee projects is the problem of scope creep. You have to be able to clearly define the scope of the project and what is and is not included in the project so the client doesn’t keep asking for more work for the same fee. This is more difficult in some practice areas than in others. (To learn more about how to avoid scope creep with alternative fee arrangements, see my Simple Steps column in the September/October issue of Law Practice, or attend the webinar on Combating Scope Creep with Alternative Fee Arrangements on December 17 (free for ABA members).
DK: Defining what is in scope for the engagement and what is out of scope. Having enough experience and data to make good estimates on how much work will be involved. Factoring in uncertainty. Having early client conversations if scope needs to change.
GS: There’s always a risk you’re pricing too low or too high. We are starting to do test timekeeping to at least measure how much time a particular kind of case costs so we can see which types of cases are the most profitable for the form. We’re also always trying to get a sense of what the market flat fee is for a particular type of case so we can be sure we’re pricing based on where we perceive our brand to be in the marketplace. That’s not always easy. Finally, we’re more disciplined about adjusting our fee menu once a year to keep up with inflation and whether cases are taking more or less time than in the past. It’s always a lot easier to let clients know of small flat fee increases you can explain as being intended to keep up with inflation than a large increase done after several years where a client will have gotten used to the lower fees.
What advice do you have for attorneys who are interested in shifting some of their projects to flat rate billing?
WG: Definitely consider it, but you may want to offer it only in certain areas of your practice depending upon what your practice is.
AS: Don’t expect to get it exactly right the first time—pricing projects on a fixed fee basis takes some trial and error. It is a learning process for both lawyers and their clients. Try them out first with clients you already have a good working relationship and who are willing to work with you to make it fair to both of you. Be very specific when defining the scope of the project, and use supplemental service agreements or change orders when circumstances change, resulting in a change of the scope of work. Get really good at project management and look for ways to continually improve your processes and to provide a consistent—and consistently excellent—experience for your clients.
DK: It all starts with client conversations. You also have to be willing to experiment and base your experiments on data. Repetitive, standard projects are the best places to start. Introduce the concept of change orders for scope changes to avoid scope creep. Give clients a choice: $$$/hour for however many hours it takes you or a flat fee of $$$$. Keep it simple, don’t overthink it, and try flat fees where it will be easiest to do them or where your competitors are already doing flat fees. There are a lot of great resources, including books published by the ABA Law Practice Division, that can be a big help.
GS: You might start by selecting a group of cases that are very similar in their fact pattern and outcome and determine the average amount you billed. That will help determine a baseline flat fee to use. Monitor whether the cases were billed at a rate higher or lower than what would have been the case if billed hourly, but don’t consider billing too low to be a failure. If you have priced your flat fees correctly, they should average about the same. Eventually, the cases should become more profitable if your fees remain the same, but you’re able to build more efficiency into the process (such as by using automation).