How to Advance a Law Firm from Contingency Pricing to a Flat Fee Structure
Many law firms work under a contingency fee, meaning that clients pay at the end of the case based on either an hourly rate, or a percentage of the settlement price. While there are a few benefits to this -> Lawyers are more likely to want higher settlements so that the attorney fee will be higher for the firm, there are a lot more benefits to the clients if the fee structure is set as a Flat Fee. This is because the fees are more predictable, allowing customers to imagine a budget for them, and it allows the firm to create a pricing sheet that potential new clients can look through to decide what services they are looking for from the firm.
There is a large set-back to switching from contingency fees to flat fees. First, the firm will need to be on top of which of services they provide usually are not flexible, the regular costs of handling a case for a client, and to be able to understand the flow of the budget from year to year in order to set prices that will benefit rather than harm the firm. The good news is that there are several ways this can be accomplished.
The first thing that will need to be accomplished is to split the different tasks normally included in a package, and split it into separate, billable tasks. For instance, the law firm can split court events into each separate event for pricing per event. Various legal drafts can be split by the regular time it takes to complete the draft from the research aspect to the final version, then generate a price based on the “warehouse price” which is the cost of the draft (billable hours and any resources used, such as a portion of the legal research site fee, or a portion of the software fee, the materials used to print any documents not remaining in electronic portion, etc) plus 1 – the decimal point value of the percentage the firm would like to make above the cost of the draft times the cost. There is also the power of attorney form, and any notary services. Any and all services that can be individualized somehow, should be.
Many times, a firm is not sure how much they will want to make above the warehouse price. This is fine. The firm will need to delve into their financial data over the last 3-5 years to find a consistent pattern in case types, as well as services offered per case. Hopefully a firm will have some sort of financial tracking service in place, such as Quickbooks or any other money management software, and they can track settlements and fees derives from the settlements. They can also track expenses running into the trust accounts to find out client costs. Many times, these costs can be categorized to derive further services for individualization. Further, firms can delve into operating expenses and categorized these to find trends and case percentages that will allow the firm to add a percentage to a base price to discover its overall warehouse cost. To be completely accurate, one could also track billable hours per case and per case task to derive a billable hour quotient to each task given a flat fee. Once clear patterns are derived from the financial information, price calculations can be established.
Once all fees are established, the firm can create a price sheet, giving them the option to generate a scope for each case. The law firm who is switching their services from contingency to flat fee will generate a price list and then affix it to a storefront on their website. Many firms will allow clients to go through this list to drop services into a cart. An advantage to this is that the firm can begin to create templates, checklists, and packages that clients can use if they prefer to go pro-bono instead of full on legal handling of their case. Law firms can still benefit by aiding those pro-bono clients will a very minimally priced guideline for handling their own case. Further, this is where the firm will add auxiliary services pricing and change pricing when the client beginning the lawyering of their case and decides to add a service, or otherwise make a change to the original scope/package.
Finally, the firm can still offer the contingency structure for clients who prefer it. In order to include those services on a more predictable basis for clients, they will need to add an interactive scale, or some may use a calculator. For this, find the most likely settlement amounts to a case, then allow the clients to use a slider to navigate to their expected settlement amount where the fee will display (if there’s a pre-lit / lit pricing difference, they can both be listed and labeled as is). For the calculator version, the website will ask the potential settlement amount then do calculations to display the fee amount(s) once inputted. Make sure that clients are aware of what is not included and provide a list of extra services with their charges when the client signs up for either fee structure. This will make the process more predictable, and may increase the number of clients willing to sign on with the firm.