Search results for: flat fees

When flat or fixed fees started to be bantered about in the last few years, partners in several of my firms said: “Won’t work for litigation, since it is too unpredictable.”  Well, welcome to the new world.

A recent article by Catherine Ho that appeared on The Washington Post’s “Capital Business” raised the question about the death of the billable hour. She pointed out that five years ago only 28% of law firms “believed that non-hourly billing would be a permanent change in the legal industry.”  That is according to the Altman Weil’s “2013 Law Firms in Transition” flash survey. In 2013, that percentage had grown to 80%.  Amazing, even though there are those (yours truly being one of many) who believed that it was a definite trend just waiting to be fully realized.

Ho also pointed out how some large firms – Holland & Knight and McDermott Will & Emery – “have even ditched the billable hour model altogether for entire teams of people.”

What is the point? you may ask.  The point is that offering fixed fees is smart marketing. Firms that do will have an advantage over law firms that don’t.  Those that won’t offer fixed fees may just be sending a message to potential clients that includes: (1) we may not have enough experience in the practice area to predict how a case is likely to proceed, (2) don’t have a history of similar cases so we don’t know how much it will cost, and (3) are not willing to share in the risk.

So, law firms that are prepared to offer alternative fees, including fixed fees, have a jump on the competition IMHO.

It’s been awhile since I wrote about flat fees as an alternative fee arrangement.  I’ve covered the topic many times on this blog.  I don’t see it as a current hot topic in the legal marketing press, but IMHO it is one that clients (at least non-BigLaw clients) are most interested in.

Think about it.  Who likes surprises?  No one, unless it’s the lottery winning kind. I don’t like bombshells when it comes to auto mechanics, plumber, electricians, or even lawyers I’ve retained in the past.  I want to know what things cost, or least a damn good estimate.  Fixed fees are one way to avoid unpleasant surprises for your clients.

So, I was taken with Patrick Lamb’s contribution to a free download on Attorney at Work entitled “New Math, New Money: A Lawyer’s Guide to the Changing Business of Law.” Lamb is a pioneer when it comes to opposing the billable hour.  In the aforementioned download, he points out five client benefits with the use of fixed fees:

  1. Saves client/in-house lawyer’s time in reviewing bills;
  2. Increases predictability in the cost of legal services;
  3. Simplifies the client budgeting effort, particularly where the business and law firm have different fiscal years;
  4. Increases client trust that they are not being taken advantage of; and
  5. Clients don’t worry about the number of lawyers or that too senior attorneys are working their matter.

In today’s incredibly, competitive legal marketplace, it would be wise to improve your clients’ experiences by offering fixed fees.  They’ll be a lot happier, at least most of them!

During Jackson Lewis’ annual corporate counsel conference, as reported in The National Law Journal and on Law.com’s Small Firm Business, alternative fees are “putting down deep roots.”

This got my attention, because although there has been much written about the subject including on this blog, it hasn’t seemed that alternative fees were catching on all that quickly. Percentages of law firm fees, other than the billable hour, have ranged from as low as 2% to as much as 20% over the next ten years.

Accordingly, the panel on “The Death of the Billable Hour?” at the Jackson Lewis conference struck me as particularly interesting based on the report that “many companies and law firms now report that as much as 40 percent of their work is billed on alternate billing arrangement that include flat fees, phased billing and contingencies.” That comment was attributed to Michael Roster, chair of the Association of Corporate Counsel’s Value Challenge. If anyone should be getting accurate percentages, it seems to me that would be the ACC.

So, if that percentage is attributable NOW to value billing, what can we really expect in ten years? And, if it is only going to increase, there are two points I’d like to make:

  1. Don’t get left behind. Make sure your business development efforts include offering value billing asap; and
  2. Start looking into project management trainings also asap, so that your firm is managing its matters efficiently enough to ensure that alternative fees will actually work in your firm. For more on that, take a look at my post of last week on what my colleague Jim Hassett over at LegalBizDev is doing and written on project management.

For those who rushed out this past weekend to take advantage of the “Cash for Clunkers” program (like my son), now it is time to rush to offer fixed fees. According to a front page story in today’s Wall Street Journal the “’Billable Hour’ (is) Under Attack,” and more and more companies are demanding fixed fee arrangements from their outside law firms. BigLaw is beginning to get the message.

Additionally, my colleague Jim Hassett has written extensively about alternative fees on his blog, Legal Business Development. He is currently conducting a survey of the AmLaw 100 firms’ practices in this area, and the survey should be completed in the next few weeks. The results will undoubtedly shed light on the views regarding alternative fees among these firms.

Since smaller firms are more flexible in terms of changing their billing structure than are the more bureaucratic, large firms, there is still time for small to medium-sized firms to take advantage. So, don’t wait.

Time is of the essence as they say. Call your key clients now to let them know you are willing to discuss flat fees before you get left behind. It won’t be long before the big guys get that huge tanker turned around.

If you are interested in reading some of my posts on alternative fees over the past 4 years…

Continue Reading Offer Fixed Fees NOW!

Evan Chesler, presiding partner at Cravath, Swaine & Moore shocked a lot of people within the legal community with his recent opinion piece on Forbes.com advocating the death of the billable hour.

Basically, he states that the billable hour “makes no sense.” Making more money by dragging out a matter (or in his analogy, making more money by getting “bogged down a land war in Asia”) is “frankly nuts.” Pretty strong words from a firm that doesn’t really have to worry about clients questioning their bills, I wouldn’t expect.

Even though tons of folks (too many people to mention here) in blogosphere, including yours truly, have long advocated doing away with the billable hour, Chesler’s comments, one could argue, clearly takes the debate to a higher level. Not many would expect such a position from a BigLaw firm of Cravath’s stature. Now maybe the concept of alternative fees, although not new, will take on a bit more momentum.

Although there have been many different suggestions for alternative fee arrangements (see Continue Reading below for a few of my posts on the topic), I found a couple of ideas from a named partner in a 10-lawyer Philadelphia area firm worth considering.  Gary Lentz of Bochetto & Lentz wrote an article published in The Legal Intelligencer and on Small Firm Business suggesting a couple of approaches that could attract new clients and enhance fee opportunities  in this down economy.

The following two variations on the same theme are worth consideration by firms of all sizes:

  • Multi-phased Fee Agreements
    • Phase I – an initial flat fee to evaluate the case, develop strategy, negotiate and “prompt resolution” (with a potential for a bonus) and drafting complaint, if necessary;
    • Phase II – a mix hourly, fixed fee and/or contingency, if necessary to file and pursue the matter in court.
  • Blended Contingency Fee Agreements – an initial flat fee to cover the evaluation of the case and drafting the complaint, followed with a contingency fee based on outcome of the matter.

Take a look. They may just work for your firm, particularly with clients who are encountering their own uncertainties in the current economy.

Continue Reading Now Is The Time To Consider Alternative Fees

As mentioned on several blogs, and in an ABA Journal online article, a recent survey of CLO’s made clear that in-house counsel aren’t buying the concept of a “new legal model.” It isn’t that they don’t want one, it’s just that 75% gave their firms a 0 to 4 (out of ten), “indicating that firms have little or no interest in change;” that is, delivering greater value for the services provided. According to Dan DiLucchio in a press release issued by Altman Weil, which conducted the 2009 Chief Legal Officer Survey, “[T]his is a dramatic vote of no confidence from chief legal officers.”

What that means for the more flexible, responsive medium- to small-sized law firms, is that they could make serious inroads into the once exclusive large firm domain. How? Some of the ways might include:

  • Increasing value in terms of pricing products and how the services are delivered;
  • Offering alternative fees, including flat fees;
  • Improving responsiveness and timeliness of services;
  • Seeking more client input and feedback;
  • Offering freebies, including CLE seminars, short phone calls, emails, etc.;
  • Stopping the nickel and diming of clients relating to overhead costs;
  • Avoiding surprises and providing regular updates at no charge; and
  • Taking time to really understand the client’s business off the clock.

A simple way learn what clients want in terms of value is to ask them what they would like to see in that regard. Not only will these firms learn what will make their existing clients happy and raving fans, but what would likely sell to those CLO’s that don’t believe their current firms are serious about a new legal model.

It was reported in Law.com’s In-House Counsel back in 2007 that small firms were using flat fees to gain an edge in taking corporate clients from larger firms.

That is still the case. As reported in a post on the Desert Law Blog citing the now famous New York Times article quoting Evan Chesler of Cravath, Swaine & Moore denouncing the billable hour, small firms are still ahead of large firms in going to flat fees. In fact, the post points out how difficult it will be for large firms to make the shift to alternative fees in spite of Chesler’s comments.

Now there seems to a new twist. In light of the economic realities of 2009, smaller firms are not only taking clients from larger firms, but their taking BigLaw’s lawyers too. A recent article by Lynne Marek in The National Law Journal that appears on Law.com’s Small Firm Business entitled “Big-Firm Partners Go Small to Keep and Attract Frugal Clients” points out that over the past four months partners from “DLA Piper, K&L Gates, Katten Muchin Rosenman and Jenner & Block” have made the move to smaller firms. It is not clear whether this movement is due primarily to the frugality of clients, or that the lawyers themselves want to offer clients lower fees and fewer conflicts of interest.  Does it really matter which?

So, my real question to small and medium-sized firms is very simple: what are you waiting for? Crank up that marketing. Let Corporate America know of the talent you already have to handle their matters at lower, alternative fees.

 

Thanks to a reader, I was alerted to an article entitled “Taming the Billable Beast” by David Gialanella in the February issue of the ABA Journal.  The article discusses how three firms are doing just that. How? you many ask:

  1. Harrison & Ford out of Atlanta has eliminated the billable hour requirements for first year associates, AND doesn’t charge clients for their time on a matter. (If you want to read more about this, take a look at my post entitled “Is the Billable Hour Now Dead?” of last August);
  2. Shepherd Law Group in Boston has done away with the billable hour completely “in favor of flat fees and fixed prices;” and
  3. Strasburger & Price in Dallas has reduced the billable hour requirement for first-years by 320 hours, and increased hours for on the job training.  

It’s reported, and I would wholeheartedly believe, that clients and first-years love it, and it certainly should help with the perennial associate retention problem.

One troubling point mentioned in the article relating to the Shepherd firm. And that is the statement involving CEO Jay Shepherd that “he denies secretly keeping track of hours spent on each case.” If the firm doesn’t do so, IMHO, it is being foolhardy based on the following simple reasoning:

  • You can’t make a profit on fixed fees unless you know what your costs are;
  • You can’t know what your costs are unless you know how much time (and other dollars) are consumed by the matter; and
  • There is no way to know how much time is being spent on matters if you don’t keep track of hours!

Duh! 

So, either they are guessing which means they don’t have a clue what their profit margin is either, or the firm has some other means of determining costs that I am unaware of.

In any event, I commend the firms for addressing the billable hour problem. I have long advocated dropping the billable hour (that doesn’t mean you don’t track working hours internally) for fixed fees as a legal marketing strategy. Moreover, it seems that reducing the billable requirements for new associates has benefits as well – in terms of training, associate and client retention, and business development. That’s a win-win-win all firms should consider.

Do what the Ambrose Law Group of Portland, Oregon did. Switch to flat fees.

I first reported on the Ambrose firm last October in the context of the Fortune Small Business’ free makeover offer the firm took advantage of. As part of that makeover, the firm switched to flat fees for transactions and some aspects of litigation. My earlier post quoted David Ambrose as saying that getting away from the billable hour was “better for clients and better for us.”

He didn’t say just how much better it was for the firm, but a recent article by Sandhya Bathija on Law.com’s Small Firm Business does. Apparently, the firm reported “a 90 percent increase in profits” as a result of their switching to fixed fees.

So, what are the advantages to flat fees (I mean other than that increasing “profits” thing):

  • Clients are happier knowing up front what their matter is going to cost them,
  • More clients will be attracted to the firm (thanks to the word-of-mouth effect from those happier clients), and
  • As a result of technology gains, the firm is more efficient as a result, and repeat matters take less time (but firm can charge same flat fee vs. a fraction of a billable hour), which of course brings us back to that profit thing.

Naturally, in order to establish flat fees, a firm has to understand and capture the costs of similar matters it has done in the past, in order to set a profitable fee in the first place. Are there risks? Sure, but in light of one firm’s experience and the other advantages mentioned, it seems to me that flat fees are a no brainer.

Thanks to the posts on  Law Practice Management and Ed Poll’s LawBiz.com for steering me to the current article.


Some may argue that they already have, but I’m getting ahead of myself. One Ph.D. economist has laid out a case for dealing with the billable hour by substituting insurance policies as a legal marketing strategy that will “…Satisfy Current Clients, Attract New Clients, and Make You More Money…” 

Dr. Rafi Mohammed sent me an e-mail asking for my comments on his post on his Pricing for Profit  blog on the above topic.  I don’t usually respond to such requests as a rule, but after perusing his post and credentials (BU, London School of Economics, and Cornell (Ph.D)), I found his posting interesting and scary at the same time.

His premise is that clients hate the hourly billing strategy (not all do, of course; e.g. some in-house counsel who themselves came from a law firm billable hour environment like it).  I do agree, though, that the billable hour is not in a client’s best interest, as I have mentioned in earlier posts here and here. It encourages cost-plus thinking like government contractors (the more you work the more you make), rather than pricing on the value/results obtained for clients.

What then does Rafi suggest? Fixed fees. Wait a minute, that isn’t a new idea, you undoubtedly are saying to yourself. But stick with me.

He accurately recognizes that one of the main reasons lawyers don’t like flat fees is the cost uncertainties associated with legal services.  Thus, his solution involves the client purchasing insurance to cover their risks associated with higher than estimated costs; and, since insurance companies are used to assuming risk, there will be companies willing to do so.

So, what’s so scary? Letting insurance companies put their nose into the tent. According to Rafi’s theory, the client would submit an estimate of legal costs to the insurance company, which in turn would assess the risk and price the policy. Client could then decide whether to buy the policy or choose the hourly rate option.

He also offers three “tangential” business models:

  1. Insurance companies offer a “lower priced version.” And, they would get involved in the legal strategy as in a “sort of ‘managed care’ legal approach” (isn’t that what much of insurance defense work is all about today?);
  2. Large firms could cut out the “middle man and self insure” (I think that law firms that offer flat fees are doing that currently); or
  3.  Insurance companies could market directly to consumers by offering fixed legal prices and a list of lawyers to choose from (I believe that is what prepaid legal plans offer now).

I don’t know whether Raji’s initial idea or a variation of it will ever fly; but, were I practicing law today, I’d sure be keeping an eye on the flap of my tent when it comes to insurance companies.