During our webinar last week, “Fixed Fees – Ditching The Billable Hour,” Lee Rosen showed you how to minimize the risks and reap the rewards of shifting from hourly billing to fixed fees. If you missed it, you can watch a recording and view the slide deck here.
During the webinar, there were a number of great questions asked by attendees that Lee didn’t have sufficient time to address. Without further ado, here are the answers!
In February, I began fixed fee billing for divorce cases. I’ve found that some potential clients are resistant to the fee structure because hourly billing gives them hope and optimism that the cost of “their” divorces will be low and less than the fee for a basic divorce. How do you address that issue?
You explain it as best you can and you let some of them go because they’re unwilling to pay a reasonable fee.
What do you do when clients want you to go beyond the expected project?
The client agreement needs to carefully define the scope of the project. If the project expands, you’ll need a new agreement or a modification of the existing agreement. Think “change order” like they do with building construction.
What about the tax advantages of writing off losses?
There are no tax advantages unless you’re using an accrual based accounting system. I’ve never come across a small or medium-sized law firm doing things that way. All of the firms I’ve worked with account for their income and expenses on a cash basis.
What is the rationale for putting fixed fees in an operating account versus a trust account?
You’ve got to put the funds where they’re supposed to go. In our jurisdiction a fixed fee is earned when paid. Putting it in the trust account would be commingling funds. Consult your ethics rules.
What if you price based on litigation and then there is no litigation?
Our firm doesn’t set a fee for litigation unless there’s litigation. We operate under a non-litigation agreement until a lawsuit is filed.
Do you recommend keeping track of your time even if not required for a fee petition just to substantiate that your flat fee is “reasonable”?
Yes, if you expect your fee to be reviewed by some authority at some point.
You mentioned the example of an attorney prevailing on a fixed fee dispute where the case settled quickly and the attorney relied on his reputation as a defense. Would this same argument work where the client ended the representation prematurely and wanted a refund?
The bottom line is that you don’t want to end up in a fight with your client over fees whether you win or not. I’d suggest you make them happy and avoid a dispute. Even if you win a fee dispute, you’ll end up hurting your reputation because the client is going to trash you in the community.
I have a transactional practice, not litigation. It’s harder to control time, because it depends on how much hand-holding the client needs and how talkative the client is. How do you build that into a fixed fee without charging too much on a fixed fee?
You build it in and you may charge too much. The client will appreciate your taking on the risk and that has huge value.
It is difficult as a new attorney to set flat fees because I rarely know how long something will take. Recently, I set a flat rate for a custody hearing, but geez – it’s hard to predict, so I also incorporated a lower hourly rate once/if it exceeds a certain number of hearings. Have you ever done a mixed fee rate like this? How do you predict a fair fee for a custody case? If I said $10,000, a huge amount, it will likely be denied by the potential client in my market.
Predicting fees is challenging and many clients are going to walk away when they understand the cost of legal services (that’s true with hourly or fixed fees). Mixing the fee between hourly and fixed dilutes many of the advantages of fixed fees. I’d go big or go home. In most jurisdictions a contested child custody matter will cost much more than you estimate. I’d be thinking five to ten times your estimate.
In criminal cases you have to get paid in advance. Our judges will not let you out once you make an appearance. Payment plans are at your own risk. Any suggestions?
I’m not a fan of payment plans either. I believe your best approach is to collect your fee in advance.
Do you have any suggestions for estimating fixed or staged fees in complex commercial litigation? Much of my practice is plaintiff’s side trademark infringement litigation on behalf of a large institutional client. The client loves fixed fees. But the nature of the work makes it hard to give reliable estimates. Any suggestions for improving the accuracy of the bid?
I have no idea how to address that situation. If I did, I’d be doing complex commercial litigation rather than family law, right?