Consider Alternative Fee Arrangements, but Don’t Give Up On the Billable Hour

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I am a big fan of alternative fee arrangements,just like Above the Law’s Jay Shepherd. I think that, over the next few years, many more firms—big and small—will embrace alternative fees. But the trick is to do it well. The disintegration of Howrey is an instructive example of what can happen when alternative fees are poorly implemented.

However, hourly billing isn’t going to disappear, nor should it. Lawyers must open up to alternative fee structures because hourly billing does not always make the most sense for the attorney and the client. But lawyers should still use hourly billing when it is the best fit.

Beyond flat fees

First, let’s clear up some confusion. Alternative fees include flat fees, but are not limited to them. Other alternative fee arrangements may include subscriptions, unbundled services, contingent fees (where they are not ordinarily used), fee “menus,” and more.

Why (and when) alternative fees make sense

Alternative fees make sense whenever time is a poor measure of the value of the work performed. The frequently-used example of a boilerplate document is a good one. The 15 minutes it probably takes to modify the agreement is a poor measure of the value of that agreement to the client (which is probably more than .2 of your hourly rate, but possibly less).

Similarly, when I defended people sued by debt collectors, my clients cared about the result—not owing the debt—not how much time I spend to get that result. Sometimes, that meant the client valued my work more than the time I put in, sometimes less.

In such cases, hourly billing may not be the right fee structure, and it makes sense to consider alternatives.

Look for leverage

The key to coming up with an alternative fee is to look for ways to leverage your time, but only if you can offer an equivalent—or better—service.

For example, in my debt collection defense cases, I realized I could “fight forms with forms,” and create my own hi-quality forms to minimize my time, provide my clients with superior service, and tie my fee to something that made more sense to everyone: a percentage of the alleged debt. I spent a lot of time creating those forms up front, but I used them in dozens of cases, which more than made up for my initial investment.

I also use alternative fees to serve my business clients. Each pays a monthly fee plus flat fees for any documents or other services. We limit the kinds of businesses we represent to a narrow category so that we tend to see the same issues again and again. This means we have a robust—and constantly improving—set of documents to work from.

Forms and alternative fees

You should be seeing a pattern, here. Alternative fees make the most sense when you are handling the same or similar tasks for many clients with the same need over time.

A big-picture, forms-based approach is essential. Price flat fees keeping in mind the next 20 clients—and the likelihood that you will get them—not just the time it will take you to do the job the first time.

Subscriptions and unbundled services

Other matters involve discrete, predictable tasks, or ongoing, repetitive needs. The former are ideal for an unbundled services arrangement, the latter for subscription pricing.

The idea behind unbundled services is simple: if the client can’t afford (or doesn’t want to pay for) your full-representation price tag, you can break the work into manageable chunks, and let the client pay a la carte.

Unbundled services generally work best for “assisted pro se” matters, where the client needs a lawyer for the hard parts (pleadings, briefs, coaching, etc.), but can otherwise do the work. You can even—in some jurisdictions—represent the client for a single hearing, and then withdraw (with the court’s permission).

Unbundled services do not have to be cheaper, but since the client can pick and choose, it often costs less. That works out to the benefit of both attorney and client.

A subscription, on the other hand, works best for ongoing tasks that are either repetitive or just don’t change over time. Businesses may want unlimited phone calls, for example, or periodic tasks like an annual business audit or monthly check-ins.

Plenty of reasons to bill by the hour—sometimes

Alternative fee arrangements are sometimes advantageous for attorneys and clients, but not always. While you can come up with an alternative fee arrangement for nearly any legal matter, it doesn’t always make sense to do so. If there is little or no ability to leverage your time or there is a significant element of unpredictability, it probably makes sense to bill by the hour.

However, as you bill by the hour, be on the lookout for tasks or documents that you can leverage in the future. Alternative fee structures may not be ideal for every matter, but they are a lot better than grinding hours. Use them if you can.

(photo: http://www.flickr.com/photos/litherland/3039847881/)

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  • I also make a point to continue to record my time for flat fee files as if they were hourly. That way, I can determine whether the flat fee is fair or if I should adjust the fee on the next file.

    • I’ve only ever charged hourly fees once that I can recall after changing fields to legal translator (the per-page and per-word traditions are strong outside of in-house translators in law firms) but I still keep calculating the per-hour for most jobs for my own information.