Whether you are ‘suddenly solo’ due to downsizing, law firm collapse or rescinded offers or you are a newly-minted solo just out of school, one of the biggest challenges of your new solo status will be differentiating yourself from others in your field. A second challenge is to determine your fees. Those two challenges combine into one powerful opportunity - offering pricing options that others have not yet considered or are afraid to implement can set you apart.
Large firms were built and staffed and are used to working on an hourly basis. Adapting their processes, staffing and procedures to a non-hourly system can be a herculean undertaking. Not so for the solo. As a solo, you don’t have partners, a management team or others to argue with about experimenting with fixed fees and other alternatives; you’re more nimble and you can be more flexible with pricing options. But if you have previously worked under the hourly model, particularly with a big firm, you will have to do some work on changing your mindset to make fixed fees work. You will need to stop focusing on hours as a measure of your fee, your productivity and your value.
One thing is clear – clients don’t actually care about your billable rate or the amount of time you’ve spent on a matter. What they care about is the value they’ve received and the total cost of legal services.
The concern about value and the ability to compare lawyers and legal services was the initial reason for a switch to the billable hour. Unable to quantify the value a lawyer provided or to compare one lawyer’s skills to another, clients sought a uniform method of billing and hit upon the billable hour, thinking they could compare lawyers by comparing hourly rates and the time spent on the matter.
Among the (many) problems with the billable hour system, however, is the inability to compare total legal costs until the matter has been completed and the work done. Budgeting is difficult under an hourly system. And comparing the total cost of legal fees is difficult, since clients are not using two separate lawyers on the same matter – it’s pure speculation whether another firm or lawyer would have spent more or less time on a particular matter.
But my clients want hourly billing
Although clients care about results and overall legal costs, many lawyers complain that their clients are not requesting – and indeed may be resistant to – alternative billing arrangements. But as Ron Baker, “guru” of value pricing for professionals points out, buyers (in this case clients) are not the ones who drive pricing decisions – sellers (lawyers) are. It is incumbent upon you, as the lawyer and expert, to clearly and concisely demonstrate the value of your fee structure to clients. Do you think your clients always know what they want or need?
Creating a fixed fee practice
Pricing based upon fixed fees allows the client to make an informed decision about whether legal services are affordable before those services are rendered. There are fewer surprises for the client, the client can budget for legal fees in advance (and is less likely to question a bill they’ve agreed to in advance), cash flow is improved, and fewer resources are expended to follow up on outstanding bills and accounts receivable.
Even if the fee must be altered from the original estimate due to unforeseen circumstances or additional services which must be provided, if you have articulated the factors that would affect the fee and communicated them to the client, there will be less resistance to the increase. Clients are more likely to cooperate, to communicate with you and provide necessary information if they aren’t worried that every contact with you costs them more money.
Fixed fees are distinguished from flat fees in that a flat fee would be the same for every matter, while a fixed fee is determined and quoted in advance, but on the basis of variables, including:
- The client
- The anticipated outcome
- The anticipated difficulty of the matter
- The client's values and priorities
Fixed fees should not be based upon anticipated hours, as this encourages reverting to hours as a measure of value. The advantages of using a fixed fee are wiped out because both lawyer and client will constantly be reviewing and reassessing the fee on an hourly basis. Similarly, capping the number of hours you will work for a client on a particularly matter retains the focus on hours and merely changes the way in which the client pays.
In my next post, I'll discuss what you need to cover with your client in the initial consultation and how to deal with unanticipated circumstances or changes in the scope of the engagement.
Want to create your own fixed fee structure? Contact me to see how I can help.
I agree fully with your comments. I think clients convert more easily when they know what they're getting, and the value of those services.
Posted by: Jeffrey Taylor | October 06, 2009 at 09:26 PM