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The independent solo: Why I prefer flat fee billing structures

In my experience, most attorneys still live and die by the billable hour. It’s the preferred billing method for most big firms and it’s also the means by which associates are evaluated. If you fail to meet your minimum billable hours by the end of the year, you’ll probably consider yourself lucky to still have your job the following year. Conversely, bill a lot and you’ll be on track for bonuses, raises and promotions. By the end of the first year as an associate I’d learned to obsess over making sure I’d “capture” my time. I wanted to make sure I didn’t lose any opportunities to bill for any legitimate work I performed on a case.

By the time I began my own practice, I was good at the billable hour. To some extent, that meant simply entering my hours in to our billing software immediately after performing my work. Failing to do so made it easy, maybe even likely, that I’d forget to bill for some of my work. After all, it’s easy to forget about a call, an email, or drafting a short letter if you don’t do it right away. And, over the course of a year, all of those .1’s to .3’s can start to add up. As a result of my attention to detail, I’d often exceed my billable requirements and qualify for yearly bonuses. So, yeah, I think I was pretty good at the billable hour structure.

Nonetheless, I didn’t hesitate to mostly jettison the billable hour as soon as I could. Sure, there are plenty of situations in which flat fee billing isn’t a good fit (some types of litigation are a good example). But, flat fee billing is a perfect pairing for the work I’ve performed for my clients in the entertainment and publishing industries. Indeed, I’ve found that flat fee billing is an excellent option even for more complex cases. I begin by breaking down the representation into segments and setting the rate for each segment individually. Additionally, to ensure that we’re on the same page, I draft a careful retainer agreement carefully delineating what is and isn’t covered in each segment of my representation.

Although I typically offer my clients an option between an hourly rate and flat fee billing, across the board my clients have chosen the flat fee rate. They’ve been wise to do so. I’ve underestimated the amount of time I’d spend on nearly every case I’ve quoted my clients thus far. However, that is often because I’ve decided to put a little “extra” work into a project to further tidy up a contract, to rephrase a research brief, or to perform a little extra research.

Despite that, there are a number of reasons I prefer to offer my clients a flat fee arrangement. In most cases, it’s my belief that time is not a good indication of value for legal work. So I don’t believe that the billable hour specifically encourages better work or better value for me or the client. Further, the billable hour arrangement doesn’t promote efficiency.  And, as a personal matter, I prefer to work without the stress of having to itemize every piece of work I perform. Moreover, because flat fee structures encourage me to work more efficiency, I have more time to devote to other projects. Moreover, as I indicated above, I find that across the board my clients have preferred the flat fee arrangement because of the certainty and value it provides. So even though the flat fee structure has on a few occasions meant receiving less total fees for my work, it has also led to happier clients who continue to return to me with new work. That alone makes up for the fees I may have lost on a single case.

Do you offer your clients flat fee rates? If so, what have your experiences been like? If not, why not? We’d love to hear from you in the comments section.

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3 Comments

  1. Brett says:

    I do flat fee almost all the time. It gets rid of trust account requirements, it helps the client budget, and it helps me to know for sure what I’m bringing in.

    It also helps me price myself out of work that I don’t want by giving a very large, but firm and inescapable price-tag. If they accept, I get a bonus for work I don’t like.

  2. LastHonestEsq says:

    As you note, providing value to the client will inevitably lead to a healthier bottom line as client’s continue to use your services and refer you to others. Excellent post.

  3. Kelly says:

    Would love to throw a suggestion out there for those who still choose billable hours. Rather than entering time in a log at the end of the day, consider a real-time tracking solution (our company uses Hours Tracking: http://hourstracking.com). Even if you do work primarily on a flat-fee basis, accurate time tracking is an important part of setting your rates appropriately. As you said, it’s far too easy to underestimate how long projects will take!