Law firms face increasing pressure to move away from time-based billing, and numerous firms have relinquished the billable hour in favour of alternative fee arrangements. We explore why a flat-fee billing structure can benefit both clients and lawyers, and offer tips on how to set your flat-fee rates.
Lawyers are all too familiar with accusations of padding bills and charging for trivialities in six-minute increments. According to a Law Society paper, the latter was once defined to make accounting practices easier, but has aroused controversy, angered clients and been negatively portrayed in the media as the hallmark of the greedy lawyer.
The billing process is a major factor that impacts a client’s overall level of satisfaction with their legal services. Not knowing how much their legal services will ultimately cost can add considerable stress to a client’s experience.
This is where flat fee and packaged legal services can be successfully used by firms to appeal to the new generation of discerning consumers. By providing more transparency, trust and confidence, legal services can be dramatically improved, promoting client satisfaction, repeat business and referrals.
Flat fee is the simplest alternative bill structure that firms can implement, and there are compelling advantages for making the switch.
1. Work quality becomes the focus of the engagement
Time-based billing creates a personal conflict between the lawyer’s interests and those of the client. The less efficient the lawyer, the higher the costs – and the less value the client receives.
Flat fees align the lawyer’s interests with their client’s, and alleviate concerns over how much time is being spent on a matter. The sole incentive for lawyers is to complete the legal work to the best of their ability. This promotes higher-quality outcomes and efficiency.
2. Fee disputes with clients are minimised
According to its 2014-15 annual report, the Legal Services Commissioner of New South Wales found that 21 per cent of the 7,328 complaints it received were about legal costs. 13 per cent of these complaints included some grievance about overcharging.
Flat fees avoid this situation by eliminating the element of surprise and reducing tension in the client–solicitor relationship. Fee amounts that are established prior to the work being undertaken enable the client to prepare for the bill.
3. Liability risk is reduced
Since the scope of a flat-fee retainer is (or should be) precisely delineated, there is no question about the tasks the lawyer has agreed to undertake. This can reduce professional liability in circumstances where a client alleges their lawyer should have taken certain additional steps that were outside the scope of work.
A properly specified retainer can also enable lawyers to withdraw from acting for a client more efficiently if they refuse to pay for a specific component of the service.
4. Lawyers can focus on being lawyers
Lawyers aren’t university educated to sell time – they learn to solve legal problems. Time-based billing is a stressful and time-consuming addition to a lawyer’s already hectic schedule, which can be overcome with flat-fee billing.
Fixed rates liberate fee earners from the pressures of achieving billable targets and determining whether they are under or overcharging clients (both of which lead to unfavourable outcomes). It means that non-billable time spent poring over pre-bills, narrating time entries and fielding fee disputes can be invested in productive legal work. It can also enhance employee job satisfaction, wellbeing and resilience.
5. Firms can gain a competitive advantage
Despite the modest rise in alternative billing models, many Australian firms have yet to move away from traditional fee structuring. This presents a prime opportunity for firms looking to distinguish their brand as a fresh, modern alternative to the norm by offering flat fee or packaged legal services.
General manager Simon Kahil of Bespoke, a law firm who has successfully implemented fixed fee billing states that there are many factors in favour of fixed pricing, including instilling trust and confidence in their clients.
Giving clients the peace of mind that comes with transparency and price certainly shows you are sensitive to their needs, and this can attract the next generation of value-conscious clients.
How sole practitioners and small firms can implement flat-fee billing
Making flat-fee billing a success largely means two things: changing the way the firm manages its finances and learning how to price your flat fees correctly.
Need guidance on how to price your services? Check out our handy checklist “Implementing flat-fee billing in your firm”.
One tool that can assist in both of these areas is the right software. Invest in practice management solutions that can help you streamline your firm’s billing. You can then use historical data to effectively price and quote flat-fee work.
Making the change to a new fee structure is not without its challenges. But firms that understand the benefits – and are willing to implement it – can offer something more to their clients.