Here’s a story from CNNMoney.com/Fortune Small Business (10/25/06) on how one Portland, Oregon law firm, Ambrose Law Group bolstered its revenues by a whopping 85 percent, after participating in Fortune Small Business’ Money Makeover Program and converting from the billable hour to flat fee arrangements. From the article:
“Flat-fee billing is better for clients and better for us,” he says. “Clients value the certainty of knowing up-front what their legal work will cost…For common items like document preparation and filings, there’s been very little resistance to the idea.” The firm still bills by the hour for most of its complex litigation work. “It’s hard to predict how much time a big case will take,” says Ambrose.
But the firm has started charging flat fees for tasks such as taking depositions and filing complaints. Revenues at the firm were up 85 percent over the first eight months of this year vs. 2005, according to Ambrose COO Jan Alexander. Staff turnover allowed Ambrose to hire more productive attorneys. But Alexander says that flat-fee pricing deserves a lot of the credit.
I wish that the article had provided more detail on the difference in cost between flat fees and billable hours. It’s not clear whether the flat fees enabled the firm to attract more business (thus accounting for more revenues) or whether flat fees in essence, enabled lawyers to collect more per hour (e.g., instead of charging $250 an hour for a 2 hour deposition or $500 total, lawyers would charge a flat fee of $1000 for every deposition regardless of length). Or does the flat fee encourage lawyers to work more efficiently, so that work cycles through more quickly?
I use flat fees wherever possible, since my clients don’t ever dispute the amount owed and always have enough budgeted for the flat fee, since it’s a fixed, rather than moving target. For that reason, solos ought to consider using flat fees, even if your flat fee is nothing more than a firm prediction of your hourly costs.
What’s your experience with flat fees? And how do you set them? Do you pick a number out of the air – or do you tie the fee to your predicted costs? Please enlighten me and my readers, below.