My Shingle

Breaking the First Commandment of Legal Billing

by Carolyn Elefant on June 25, 2014 · 8 comments

in Fees & Billing, Guest Post

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This post is part of the MyShingle Solos summer series which will run between June 17 and July 3, 2014. 

denisenicholsThis post is written by MyShingle Guest Blogger Denise Nichols 

When I started my law practice a few years ago, I was certain that inscribed on some ancient legal manuscript were the words “Thou Shalt Bill Hourly.”  I attempted to adhere to this widely accepted practice, but without much success.  Had I joined a firm, as opposed to hanging out my own shingle immediately after law school, perhaps I would have developed a different view of hourly billing – or at very least, been forced to master the task.   But despite the tips and tricks offered by experienced, well-meaning attorneys, as well as trying various software solutions, I failed miserably at keeping up with my hours.  Simply put, the process of hourly billing felt unnatural to me.

Prior to joining the ranks of the legal profession, I found the attorney-client relationship to be somewhat intimidating; particularly with regard to the costs involved.  I may have liked the person representing me, but I was uncomfortable with the process.  I felt as though there was a wall between me (as client) and my attorney, due in a significant part to my concern about costs. Each time I thought of calling or emailing my attorney with a question or comment, or to simply get a status report, that wall grew ever larger.

Upon moving to the other side of the desk, I found the first question asked by most new clients was “how much will hiring you cost me?”  When I quoted an hourly fee, I sensed an immediate shift in the dynamics of our rapport.  Not because my hourly fee was shockingly high, but because of the total cost the client could incur was unknown.  My clients seemed to be experiencing the same “wall” effect that I had experienced when I was in their shoes.  

When I first mentioned to attorney-friends my disdain for hourly billing and my plan to convert my billing method to a flat fee only basis, responses ranged from the curious (“Really?  How will that work?”) to the skeptical (“I don’t think that will work.”) to the offended (“If you do that you’ll devalue all of our legal services! And besides, it won’t work.”).  Suffice it to say, there was not a lot of encouragement for my flat fee idea.

Determined to find support somewhere, I turned to the Internet.  I began by searching for law firms in my practice area (transactional entertainment law) that used some type of flat fee billing method.   To my surprise, examples were plentiful, with varied approaches to setting and implementing flat fees.  When establishing the flat fees I charged my clients, I wanted to be competitive with the other attorneys in my practice area and region who charged hourly fees, while also being fairly compensated for the services I provided. After a considerable amount of research, I came up with the following questions, which I used as a guide to establish the flat fees for my practice:

  1. What types of documents / matters / clients do I see most regularly?
  1. Of these, how often am I drafting, and how often am I reviewing someone else’s draft?
  1. When I am drafting, which types of documents / matters / clients typically take the longest period of time, from initial meeting to execution?  Which take the shortest period of time?
  1. When I am NOT drafting, which types of documents / matters / clients typically take the longest period of time, from initial meeting to execution?  Which take the shortest period of time?
  1. When I am drafting, what is the most, least, and median amount billed for each type of document / matter / client?  What are the variables of each?
  1. When I am NOT drafting, what is the most, least, and median amount billed for each type of document / matter / client?  What are the variables of each?
  1. What other criteria may be most useful when establishing the flat fees I charge for my services?
  1. How do I determine the appropriate flat fee amount if I have not previously handled a particular type of document / matter / client?

Answering these questions to the best of my ability, and quantifying my answers, my findings included:

  1. Regardless of type of document / matter / client, in general, I spent more time (and thus billed my clients more) when I was NOT drafting.
  1. The amount billed correlated most directly with the length of the document as opposed to the type of document / matter / client.
  1. It may not be possible to establish a flat fee for every type of document / matter / client that I encounter; however, by defining those that I see most frequently, I can establish flat fees for over 70% of my work (I charge flat fees for the remainder of my work as well, but those flat fees are determined on a case by case basis).

Using my findings, I created a flat fee “rate card” for my legal services.  I continue to tweak my flat fees, and also develop other means of billing (e.g. – charging a per page fee for some types of documents when I am not drafting; offering a lesser fee when I review a document and provide a written assessment to my client, but I do not handle the negotiation with the other party).

While there may not be one perfect legal billing system that works for everyone – flat fee or otherwise – and occasionally I may charge less than I would have, had I been billing hourly, I am now six months into what I refer to as my “flat fee freedom,” with no intention of returning to an hourly billing system.

The Primacy Firm is a boutique entertainment law firm that caters to the Nashville creative community.  Founded in 2010 by  music industry veteran, Denise Nichols, the firm focuses on assisting creative individuals and small businesses navigate the constantly-changing legal landscape of the entertainment industry.

  • Bill

    Interesting post, Denise. Do you still track your hours, at least as a means of calibrating the fees, or checking on calibration?
    Bill

  • Denise Nichols

    Thanks, Bill. I have not tracked hours since implementing this new procedure in January. In order to make this switch I felt it necessary to make a clean break from hourly billing / tracking. That said, I am considering periodic tracking for the reasons you mention (as an audit process).

  • Paul Spitz

    I’m trying to do flat fees whenever possible for my new business/transactional practice, so I found your post very interesting. I also have found that documents someone else drafted take longer to deal with, especially if they were cobbled together by a non-lawyer without any understanding of the terms.

    I think that rather than tracking hours to benchmark your flat fees, you might try simply asking “was that way more trouble than it was worth?” Hours worked X hourly rate may not correlate to value to client, but you can charge more for more difficult things. For example, I sometimes prepare website terms of service and privacy policies. TOS are generally more straightforward and easier than privacy policies. With privacy policies, you have to get into the nitty gritty of what information is collected, how it is used, with whom it is shared, etc. It’s more work, and often requires more customization.

  • Bill

    About 85% of my work is billed hourly; most of my clients are fairly large or midmarket companies, and I have not had a lot of push back on the traditional billing practices. That may be in part because my hourly rate is a bit lower now than it was when I was at my former large firm, although not by much. The types of matters where I offer flat fees are usually on regulatory compliance training and on a specific niche type of administrative litigation; both are matters I can scope out pretty easily. (For the litigation matters, we always agree that if it settles very early the fee will be reduced, and if significant new issues or parties enter, the flat fee will be increased.) I always offer an hourly billing alternative (with estimates) as an alternative to the flat fee. I think the flat fee attraction to the client is the ability to budget the matter with certainty; for me, I hope I am scoping it well enough that my flat fee is, ultimately, more profitable than the hourly rate. From my own tracking, I am right about two-thirds of the time. All that said, most of my clients still select hourly billing, even for the matters where there is a choice.

  • Denise Nichols

    Your statement: “Hours worked X hourly rate may not correlate to value to client” is one of the (many) reasons I made this switch. Having only been practicing 4 years, this is often the case. While my hourly fee was lower than others with more experience, it still didn’t seem fair to the client for me to learn on their dime. Thanks for the feedback.

  • Denise Nichols

    I tried the hourly w/ estimate method, but it seemed to usually be interpreted as a fee cap – or at least set an expectation of maximum, thus wound up in the “pro” column regarding my move to flat fees. Interestingly I heard a radio advertisement today that referred to “up front pricing” (it wasn’t a law firm ad, but I can’t recall the industry), so now I’m toying with the idea of using this language instead of flat fees – it seems to lend itself to more pricing variance. At least that’s my impression.

  • Thomas Bowden

    Denise, since setting out of my own over two years ago, I have charged
    exclusively flat fees for projects and “monthly retainer” fees for my
    “all-you-can-eat plan”. I even risked turning away clients who wanted
    hourly billing, or thought they did. You might want to check out the
    “Alternative Fee Lawyers” group on LinkedIn, or the Verasage
    & Friends page on Facebook. Lots of great information there and moral
    support as well. Also you can go to the verasage.com
    website, where you will learn about Ron Baker and his merry band of
    value pricing experts. Hats off to you for taking the plunge on your
    own!

  • Denise Nichols

    Thanks for this support and the insight, Thomas… I will definitely check out both groups you suggest.

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