Best Practices for Charging by Fixed Fee

Charging by fee plays it safe with clients. This method is often desirable on two accounts:

  • Clients can assess whether the service is affordable or not.
  • There are no surprises of fees skyrocketing, and there is full disclosure on how much the final cost will be.

On the downside, a price war with other firms and attorneys can ensue. There are also other disadvantages of fixed fee work. One downfall is that firms are at the discretion of how long the work takes to complete. In a nutshell, this means that the fee will still be the same, regardless of how long it takes and the effort undergone.

Paradoxically, when charging by fee the amount of time taken to complete the task is the key factor to consider. For instance, a law firm charges a flat fee for a Will service that it believes will take them two weeks. If it then takes five extra days to complete, the firm is not operating a profitable business. Perhaps, the largest myth around fixed fees is that time is irrelevant. Some firms decide to charge by fee because they wish to avoid charging by time, as they do not feel comfortable doing so. Although, when charging by fee, time is of essence.

Law firms must know how long it will take them to complete a task to charge a sufficient price that justifies the value of their service. It is not uncommon to hear that an attorney has no idea how much his or her services are worth per hour. Many attorneys simply do not have the tools to understand how their law firm is functioning. These attorneys end up underestimating their value and losing potential sources of profit.

Without the right processes in place, there is a lack of transparency to measure productivity and efficiency. How can a practice decipher if its staff is generating revenue, if there are no tools in place to gauge how long it takes them to complete tasks?

Moreover, what sort of prospective sources of income are firms losing due to inefficiencies within the firm? Productivity is essential to a law firm. The quicker the firm can complete the work at hand, the more billable hours gained.

It is imperative to mention at this point that competition, of course, drives down price and caps small law firms’ ability to charge their clients from what they would ideally like to charge. As a direct consequence, this makes productivity and efficiency the most crucial concern. If small law firms are forced to charge a lower price due to competition, then they need to complete their matters faster to remain profitable.

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