Flat fees: Affordability for clients and success for attorneys

Affordability is a term I hear quite a bit in reference to lawyers these days. The common claim is that lawyers are not affordable enough for the average client and should lower their rates. Admittedly, every time I hear this kind of talk my immediate reaction is to think about the lack of affordability of my law school education. Nonetheless, there is no doubt that the legal landscape has undergone a dramatic transition, one which started around 2008.

Discussions of affordability usually include the argument that people of moderate means are underserved by the legal community. This is a claim I often hear from seasoned lawyers who practiced during the pre-2008 glory days of plentiful jobs and clients. I will not contest the fact that there is likely an untapped market there, but I wonder if these seasoned lawyers realize that many young and new lawyers today are of moderate means themselves, often struggling to afford their educations and support their new practices.

The good news is that by providing affordable services to clients, attorneys may ultimately create more business and greater efficiency for themselves and their practice.

Flat fees, appropriate fee arrangements and greater predictability

Flat fees may address clients’ affordability requests and, more importantly, provide what most middle-class Americans need financially: predictable costs they can budget for. I personally hate any financial proposition that has an indeterminate outcome, like arrangements allowing someone to bill me by the hour until the job is complete.

The predictable nature of flat fees eases fears and helps potential clients know what they are getting into. One writer, Stuart J. T. Dodds, author of “Smarter Pricing, Smarter Profit,” refers to these flat-fee plans as “appropriate fee arrangements.”

Clients view flat fees as ethically reasonable primarily because the attorney assumes the risk that the work will exceed the fee. Obviously, this can be potentially disastrous for new or young lawyers’ businesses if the work really does far exceed the compensation.

During a CLE course I attended a few months ago, an estate lawyer who had been practicing for over a decade noted that flat fees had not been a winning business strategy for him. He found that too often the work far exceeded the fee. The attorney suggested setting standard flat fees for basic services such as drafting a will, opening a probate or setting up a trust, but also charging additional fees, clearly disclosed to the client at the outset of the relationship, if any one of a number of possible complexities arise while performing those basic services.

If an attorney is going to proceed with any flat-fee arrangement, he or she must increase efficiency as much as possible in order to help a variety of clients and build a successful practice.

Efficiency and effective legal project management are key

Through effective project management and carefully tracking costs in flat-fee cases, attorneys can learn how to appropriately set fees for similar cases in the future. As Dodds notes in “Smarter Pricing, Smarter Profit,” this process is about communication and change.

Attorneys must assess feedback from clients as well as costs required to complete casework to make smart adjustments to future fees. Dodds says some important questions to ask are as follows:

  • How much time is required to complete certain tasks?
  • Are the lawyers using the correct budgeting tools?
  • Have the attorneys been trained in legal project management?

Asking these questions helps attorneys assess if they are being efficient and effective in the delivering services, overseeing costs, handling risk and providing value.

Using technology to increase efficiency

Timekeeping tools such as MyCase or Harvest, which offers a 30-day free trial, can help lawyers effectively manage their time and provide useful, factual feedback.

In one of my recent posts, I covered other technologies and apps that can increase efficiency and provide benefits for solo, newer or younger lawyers looking to minimize overhead costs.

Profitability really means sustainability

It is important to remember that for new and younger lawyers, profitability is not about driving Bentleys and wearing Rolexes. It is about avoiding the nightmare of being unable to repay student loans.

Dodds explains, “Profitability in a law firm today is nothing more than setting a fair and transparent price for work, then managing the work efficiently to meet the estimate.”

Armed with knowledge of the cost and value of the services, attorneys can set fees that are affordable for potential clients, increase workflow efficiency and ultimately grow a successful practice.

Note: Please keep in mind that there are ethical implications of flat fees in each state that I have not discussed here. It is important to understand those implications before you proceed with such arrangements.