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I was recently interviewed by the Minnesota Lawyer newspaper for an article on flat fees that grew out of my Twelve Truths of Time presentation in Duluth, MN. We did the interview as a series of questions, which I’m reproducing below. Once I get a link to the actual article (if it isn’t behind a subscription firewall), I’ll post that here, too.
In what types of cases does flat fee billing work best?
There’s no one type of case where it works best, but there are certainly cases where it works easiest: ones with a certain beginning and ending that fall squarely within the lawyer’s expertise. However, any case can be priced on a flat fee basis provided the attorney has the experience to properly evaluate the matter and has the systems in place to handle it economically.
The key thing to remember is that a lawyer doesn’t need to make the same money on each case as they’d have made by billing hourly. Instead, so long as lawyers price right on average, they’ll win in the aggregate.
Is it possible to do flat fee billing in litigation matters? If so, how does that work?
Litigation is really no different than other complex transactions — such as building a sky scraper — that are handled on a fixed-price basis every day. The key is to enter into a mutual understanding with the client that accounts for the unexpected. Much like “change orders” are used by contractors, lawyers, too can utilize them to account for a case that takes an unexpected turn. The key is to define ahead of time the kinds of things that are truly out of the ordinary and make certain the client understands that when circumstances change dramatically, so too can the price.
Another simpler way to begin down the road of fixed-fee pricing is to assign a price to each discrete service (such as depositions, interrogatories, days in court, etc.) that the client agrees to before the representation begins. Then, in partnership with the client, a lawyer can map out a strategy for litigating the case and give the client a pretty accurate picture of the costs before they are incurred.
Can/are large law firms also using flat fee billing? If so, in what kinds of cases?
Large firms should have an advantage in flat fee pricing, because they’re not only able to absorb better the “one bad guess” on price, but should have a far greater amount of date from which to accurately estimate what their costs are in each matter. The irony is that while large firms have a significant advantage in doing flat fee work, they are the least likely to adopt it as a primary method of pricing their services.
What are the advantages of flat fee billing?
There are so many, but the principal one — and the one clients embrace, too — is that the lawyer’s and client’s interests are now aligned. Both now desire to handle the case in the most expeditious way, and law firms are now driven to embrace client-friendly innovative practices instead of eschewing them.
What are the disadvantages?
The key challenge in implementing flat fee pricing is that because so many lawyers don’t have accurate records of their cost per case or client, they often guess wrong on price.
Are clients demanding other options to “billing by the hour”?
Not all clients are demanding options, because many don’t know options exist. I do know from personal experience that my lawyer clients who are introducing flat fees to their customers are receiving an enthusiastic response.
Any final thoughts/tips for practitioners when it comes to flat fees?
Don’t be afraid of flat fees or other alternative pricing methods. So long as you know your business and know your clients, you can implement alternative ways of pricing your services that can make you more money and satisfy your clients. And if you’re not sure about how to go about developing a flat fee pricing model, ask your clients. They’ll love to give you some advice for a change.
Matt,
Your presentation avoids the most fundamental questions of economics.
The question is not whether we like to keep time records and bill or our time, or that doing such has a cost, or whether there are some flaws.
The question is much more simple. Is there a cheaper way for clients to buy legal services? Unless you can propose an alternative billing method that lowers costs for clients, you have said nothing.
And, you and I know you can’t. Time based billing tells the client exactly what it cost to provide the service. Such transparency in a market drives out “rents.”
Law is the most competitive business in the United States. There are no real barriers to entry that exclude competition.
The capital costs of opening and operating a law firm are de minimis. Contrast the costs of opening any small business to the cost of a legal education.
Additionally, your metaphors don’t compare. Litigation, for example, is nothing like construction. No adversary goes out every night and tears down the wall you put up during the day. Further, construction law depends on full and complete factual disclosure of site conditions, backed up by real remedies when false information is provided.
I appreciate your article. I have been gradually shifting to flat fee billing for many engagements. However, chatty clients have posed a particular problem.
How do you handle talkative clients during flat fee billing? If they are paying by the hour, clients have an incentive to be efficient with their communications.
In litigation, I bill hourly, and if clients want to talk about every little detail, I am at least being compensated for all the time they spend in conversations with me. It would seem difficult to limit a client’s quantity of communication without the hourly rate in place.
Divorce litigation is especially challenging because the clients often want to spend hours talking through their emotions.
We bill flat fees to fight any New York traffic ticket, speeding ticket or truck ticket. I love it. I don’t have to keep track of hours (it wastes my time) and I don’t have to prepare or review hourly bills. With flat fees, there are no surprises to our clients, no negotiating or haggling, and (best of alL) we can charge and get paid 100% up front.
We bill flat fees to fight any New York traffic ticket, speeding ticket or truck ticket. I love it. I don’t have to keep track of hours (it wastes my time) and I don’t have to prepare or review hourly bills. With flat fees, there are no surprises to our clients, no negotiating or haggling, and (best of alL) we can charge and get paid 100% up front.
It is possible to price – bankruptcy, divorce, and criminal are done via flat fee (excluding appeals). Dealing w/ complexity – in a business bankruptcy, you charge a flat fee for the bankruptcy process and plan, and add the “change order” (or bill by the hour) for adversary proceedings that arise. Financing – the costs are harder, but couldn’t you start w/ an assumption of using the model forms written a few years back?