Should you switch from billable hours to fixed fees?

A lot of law firms are  changing how they charge their clients and moving to fixed fees, but why? Is this a good idea, is it difficult and should you switch? These are a number of the the questions that are asked about fixed fees and in this blog we answer a lot of these questions.

The problem with the billable hours.

Lawyers have traditionally charged their clients using hourly rate billing. Recently this way of billing has received a lot of criticism, particularly on social media. Critics assert that billable hours encourage inefficiency, fail to give clients certainty, which is what they want, and result in clients receiving surprisingly high bills. As a result, fixed fees are growing in popularity.

Switching from billable hours to fixed fees can seem daunting. It is a complete change in approach and philosophy, and the change takes considerable thought and research.

It is essential to remember that pricing and billing form part of your identity and can help to cement or damage your reputation.

So the fee structure should be a conscious choice, not something adopted simply because firms traditionally operate in a certain way.

Understanding why you charge something is fundamental. Law firms spend a lot of time and money on marketing and branding, so it is essential that the changing structure aligns with your philosophy and contributes to achieving your objectives.

The fee you charge and how you communicate your price to a client is integral to the image you create.If you portray your firm as client-centric, the charging structure must reflect that. 

Using a charging process that advises a client, “my hourly rate is x, but I cannot tell you how much my bill will be ” does not give that impression.

If you want to be seen as efficient, serving a bill three times the estimate does not support that message.

There is more than one way to bill a client, but how you choose to do so should reflect how you want the client to view your firm.

What are the advantages of fixed fees? 

Clients know from the outset what they will be charged and do not receive an unexpected bill at the end.

Firms know how much they will get paid, which helps financial management.

It results in a happy firm and a happy client.

Improved communication

Solicitors have a poor reputation when it comes to fees and pricing. 20 – 25% of complaints to the legal ombudsman relate to the fees charged. These complaints are frequently about how solicitors provide information about fees.

Using fixed fees makes it easier to communicate with a client transparently. 

Good communication with a client is vital to understanding their needs and how you can assist. Utilizing fixed fees leads to an easier conversation. 

You no longer have to advise a client “my hourly rate is x, but I am unable to tell you what the final bill will be.”

It is no longer challenging and awkward but instead builds the foundation of a solid relationship between lawyer and client.

What are the challenges of fixed fees?

Fixed fees are not without their challenges. Frequently cited problems are;

1. They are more difficult to calculate than hourly rates.
2. You can’t calculate fixed fees because you don’t know what work is required.

But there are solutions.

What can you do to assist with fixed fees?

The correct processes, technology, training, and support can alleviate many of the technical challenges of calculating a fixed fee.

Training for Lawyers

Lawyers have not always received training to provide estimates and fixed fees to clients. It is not part of the formal training process. 

As with many non-legal skills, lawyers may learn and understand fees by osmosis, which can lead to knowledge gaps. 

Estimating and fixing fees is a skill to learn with support and training.

Have a process

It is challenging to calculate fixed fees without a process to follow.

The processes can be straightforward, following steps to guide you to a suitable quote, ensuring that important information is not left out.

Using the correct process improves the effectiveness of fixed fees and gives the lawyer confidence in their quote.

Several IT software options are available to help with the process.

There are several ways to manage this problem.

Identifying the scope of the fee is essential in all matters, particularly the difficult and complex cases. Both parties should clearly understand the work included in the quote and the work excluded from the fee. All changes in scope need identifying and corrective steps taken.

The price for the fixed fees does not have to be provided, for the whole matter, from the start. You can quote a figure for the different phases. 

It is not essential to identify all phases from the start. Instead, you can quote a price for the initial investigation phase, and provide additional quotes as the matter progresses. This process enables the flexibility to introduce further phases of work as required.

How important is establishing scope when working on a fixed fee basis?

Scoping a matter is fundamental. It is one of the main reasons that fixed fees fail.

You can utilise the process of establishing the scope with the client to build a relationship, ensure you understand their needs, and plan the work.

Both parties need to be clear about what the fee covers and what work is excluded.

It is not necessary to fix the fee for the whole matter at the start, phased fixed fees can be agreed and the scope defined for each phase.This allows for changes in direction to be implemented as the matter proceeds.

Reviewing and monitoring the scope is essential. If work exceeds the agreed scope, it is vital to stop and assess whether a further fee requires agreement.