In my last post, I discussed the opportunities for solos to begin using fixed fees in their practice, the advantages for doing so, and the dangers of basing fixed fees on hours. But how do you introduce fixed fees to clients, and what do you do if the scope of the engagement changes during the course of your representation?
Every problem with billing, fees and payment relates back to the initial consultation with the client and how well you've defined the scope of the project and communicated value.
The initial consultation
The foundation for every good attorney client relationship is laid at the time of the initial consultation. All clients want to know what they’re paying for and ensure that they are receiving value. The client’s perception of value is driven by their expectations, which must be explored during the initial consultation with the client.
At the initial consultation, you’ll want to:
- Identify the results the client wants to accomplish
- Establish the value of the engagement and of your services based on the client’s goals and objectives
- Define the scope of the engagement
- Identify the variables or occurrences that might change the scope of the work
- Set the tone and establish billing practices and procedures
- Delineate fees up front
- Document the scope of work, method of calculating the fee and the payment terms in writing
- Explain the use of ‘change orders’ or supplemental service agreements when the scope changes
Providing the client with options
Options allow clients to participate in setting the fee by providing the client with choices about the service to be provided and, as a result, some control over the fee to be charged.
Examples of options include:
- Packaging or bundling some services together at a different fee than the services would be priced separately
- Providing additional services to the client at a premium fee
Change orders and supplemental services agreements
Many lawyers fear fixed fee arrangements because they are afraid that they will under-estimate the amount of work required, or that unforeseen circumstances will arise which were not originally contemplated by the attorney, and therefore were not factored in to the original fee calculation. For example, additional witnesses who must be deposed; unanticipated motion practice or extensive documentary discovery. In those instances, a supplemental services agreement which describes the additional scope of services and additional fee can be prepared, and accompanied by an additional fee quote. These issues can be alleviated by the use of supplemental services agreements.
By their very nature, fixed fee agreements imply a limited scope of work. Clients must therefore be educated about the kinds of occurrences or variables that may result in additional services or fees. Be clear about the scope of work and provide examples of the kinds of variables that are likely to result in a change order or increase in the fee.
The change order or supplemental services agreement describes the additional scope of services to be provided and resulting additional fee. The decision to provide additional services for an additional fee must be based upon the client’s needs and stated goals. Articulate the changes in your fees by demonstrating how the additional services are tied to the services requested or outcome desired by the client – not by the additional time that will be expended or the additional work that must be done by the lawyer.
Success will depend on how well you’ve defined the scope of the engagement and the variables that might affect the fee up front. When those circumstances do arise, the client won’t be surprised.
A change in mindset
Lawyers who are used to the hourly billing system have been rewarded for spending additional hours to analyze every angle and explore every possibility – even where those efforts resulted in diminishing returns for the client. Under a fixed fee system, the lawyer and client together will have to analyze the efficacy of undertaking such tasks and the fee for doing so before the work is performed.
Under a fixed fee system, the lawyer will be required to manage engagements in a different way and focus on allocating resources, including staff (if any) in a way that makes sense for the engagement and in terms of the client's stated goals and objectives and the value of the engagement to the client.
The goal of fixed fees isn’t necessarily to make MORE money than you would make on the same matter billed on an hourly basis. The goal is to create a fee structure that your clients can understand and buy into, that doesn’t create conflicts between lawyer and client, and that rewards lawyers who can manage well, staff appropriately, resolve disputes expeditiously and work efficiently. Most of all, the goal is to create value for the client by working effectively - by focusing on what matters most to clients.
Fixed fees eliminate a lot of the traditional conflicts between lawyers and clients that are inherent in the hourly billing system, and focus on the knowledge, skill and ability of the lawyer in achieving the service and outcomes a client seeks, rather than focusing merely on hours expended.
Trial and error
It is worth noting that no fee structure or billing system is perfect, and there are obstacles to be overcome regardless of the billing method used. Unscrupulous attorneys will find a way under any fee structure to cheat the client, and some clients will be unwilling to pay even reasonable fees.
Problems such as these cannot be solved by changing a lawyer’s fee structure – they must be resolved by vigilant clients seeking information and explanations from their lawyers, by conscientious lawyers educating their clients about the process, the value and benefits their work provide and their fee structure, and by both lawyers and clients being selective in deciding with whom to do business.
Working with alternative fee structures and setting fixed fees is not necessarily 'easy.' It will involve trial and error and a lot of planning and defining goals and variables up front. Change is never easy, but billing hourly isn't 'easy' either - just look at all of the problems and complaints it creates.
Increased competition is likely to drive down prices, particularly in this economy. Clients will be focused even more on value than they have been in the past. Lawyers who can provide clients with more certainty about their fees have a built-in value proposition.
Might shifting to a non-hourly billing structure mean a loss in the short term? It most certainly might. And it might result in less revenue per engagement. But proper project management combined with innovation may result in a long term gain, increased client loyalty and a better client base, (or even one of the above), it’s still probably worth it. Is the fact that it may be 'difficult,' (especially at first) to implement a reason to give up on alternative fee structures?
Alternative fees are going to become more and more prevalent. Lawyers are going to have to learn how they can use them, or risk losing clients. If you’re ‘suddenly solo,’ why not stay ahead of the curve and start implementing some of these alternatives now?
Need help? Contact me to find out how I can help you set up a fee structure that works for you and your clients.