Law Firm Pricing Models

Law Firm Pricing Models

When it comes to law firm pricing models, you’ve got more room to test and try things out now than ever before. For the last 75 years, most attorneys defaulted to the billable hour (outside some specific practice areas that offered contingency fees or flat fees). 

Now, as we’ll discuss below, plenty of attorneys are seeing success with alternative firm pricing models. There are a variety of pricing models that will align your fees and income with your client’s goals. No matter which pricing model/s you chose, your primary goal should be to deliver value to your clients.

Hourly Billing 

Hourly billing is what most people think of when they hear attorney fees and it has been used by many firms over the last 70 years. In this model, lawyers pick an hourly rate and charge for the time they spend working on a matter. Most firms bill in 6 minutes (or .1) or 12 minutes (.2) increments. 

Don’t Default to Hourly Rate 

The default for many lawyers starting their own firm is to bill by the hour. Please don’t do this.

Yes, there could be times when billing by the hour is a good measure of value. The problem is that most firms treat it as the only measure of value, and that’s definitely not true. There are plenty of reasons to consider alternative models and whether they are a better measure of value. In Chapter 6, we’ll discuss why many firms are happy (and profitable) when they ditch the billable hour. 

Setting Your Hourly Rate

Hourly rates are generally set based on a mix of the following:

You can also use our hourly rate calculator to help you find a reasonable hourly rate.

Contingency Fee Pricing

Contingency pricing is typically used in litigation, insurance, personal injury, employment, or medical malpractice cases. This is where you take a certain percentage of the monetary settlement or damages award your client receives. 

The fee is generally a percentage of the award, usually 30%-40%. Often, the percentage the firm receives increases if the case proceeds through certain stages of litigation. 

Benefits & Drawbacks of Contingency Fees 

This is a good option for clients who cannot pay upfront, but could lead to you and your clients having different goals. Your client may want to take a matter to trial, but you may feel like you would prefer to settle and ensure your payment. Working on a contingency can be costly for the firm if it covers the costs of expenses and expert fees but is unable to recover an award. 

Ethical Considerations

A note on contingency fees: ABA Model Rule 1.5(d) prohibits the use of contingency fees for divorce cases where the fee is contingent on securing the divorce or getting an amount of alimony, support, or property and criminal cases. You’ll want to check with your state’s ethics rules to make sure certain cases can be charged on contingency and whether additional requirements (such as a written fee agreement) are required.  

Flat-Fee Pricing

Flat fees, also known as fixed fees, are pre-arranged total fees that are decided before the law firm starts work on the matter. Many clients prefer flat fees because they have certainty. Clients like avoiding surprise bills and attorneys avoid fee collection hassles. 

Flat-Fees Can Reflect Your Experience

Flat fees also reward the firm for its experience and for finding more efficient ways to deliver clients the results they want. Clients don’t really want to buy your time. If you’re experienced and can solve their problem in an hour, billing by the hour doesn’t really compensate you for your time. Similarly, you should be incentivized and rewarded for taking advantage of tech automation tools that expedite your process. 

Flat-Fee Doesn’t Mean One-Fee

Many firms push back on flat fees assuming they cannot price legal work on the front end because there are too many unknowns that could pop up during the matter. You don’t have to charge a flat fee for an entire project or matter upfront. Instead, charge a flat fee per project phase or time period. You can also break down a matter into smaller pieces and charge a fixed rate for each piece. This allows for greater flexibility and reevaluation as the matter progresses so both you and your client won’t feel cheated.

Legal Subscription Plans 

A legal subscription plan is where you offer certain services to clients for a fixed price on a recurring basis. It’s like Netflix, but for legal services. 

Some kinds of legal work lend themselves to a subscription model although we are seeing it being used in more types of practices. The key is to scope the work that you will deliver over the time period (usually monthly but it could be quarterly or even annually).

Subscription Plans Look a Lot of Different Ways

There are lots of ways to scope the work you will include in your subscription, but you want to avoid just offering a set amount of hours. Instead, think creatively about the value your services deliver and what the client needs. 

For example, a business transaction client may pay a fixed monthly amount for unlimited phone calls and emails and 2 contracts drafted and reviewed per month. You could also offer your clients access to tools that they could use. For example, you could have a set of online forms with directions that clients can access and use as part of your subscription plan. Employment lawyers could give clients on subscription plans access to their library of employment training videos. The options are really endless. 

Finally, just like the refrigerator example in Chapter 1, you can offer a few different subscription options. One of our Lawyerist Lab members created several plans with each plan offering different products and levels of service. For example, clients at the highest price tier got same-day access to the lawyer while other clients had to schedule calls at least 24 hours in advance. 

To hear lawyers who are using subscription services in their practice, take a listen to the Lawyerist Podcast Episode #163, Sustainable Subscription Fees for Business Clients, with Kim Bennett.

Test It Out

Here’s a pro tip if you’re just getting started. Invite a handful of select clients to test your plan so that both parties can see what works and what doesn’t. Also, don’t start off by locking clients into “annual” plans. You’ll want more flexibility in the beginning if your original idea doesn’t work the way you expected. 

Finally, don’t be afraid to test things. Many attorneys are scared to adopt flat fees or subscriptions because they assume clients will take advantage of them by calling all the time. Many attorneys are pleasantly surprised when this fear never comes to fruition. Overall, clients generally won’t abuse their services (and you find ways to address it if they do).

Value-Based Billing

In this model, the lawyer sets their price based on the client’s perceived value of the services instead of basing the price on traditional inputs such as time or costs. A firm using value-based pricing will consult with the client to determine how much the client values the work and is willing to pay for the lawyer’s services. Many clients go to a lawyer with an understanding of how much they are willing to pay for the lawyer’s help solving the problem. In this scheme, the lawyer doesn’t simply quote a standard price but must engage with the client to understand their needs, wants, and desired outcomes. Based on this discussion, the attorney and client scope the work together.  

Because value-based billing requires the attorney and client to agree on the price for each individual matter, it may not be a pricing scheme used firm-wide immediately. Instead, you have to work with the client on the front end to determine how they value your services. 

During the consult, you should ask the client questions like:

After this discussion, the law firm and client should be able to mutually agree on terms and a price for working together.

Unbundled Legal Services  

Offering unbundled legal services is not really a pricing scheme, but relates to how you scope your services. Unbundled legal services, or limited scope representation, means limiting the scope of work to a specific task or project. Not everyone needs full, traditional legal representation. Some clients might prefer (or only be able to pay) for you to represent them for a discrete part of their legal matter. 

Common Examples of Unbundled Legal Services

The key is that the scope of the representation is limited (not that the representation is limited).

Limited Scope Representation Considerations

ABA Model Rule 1.2(c) governs unbundling. It states, “A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed content.”  While the majority of states have adopted the Model Rule or a substantially similar rule, some states have provided additional guidance on these practices and so it is always best to consult the rules of your jurisdiction to determine what is required. The ABA maintains this list of each state’s rules with respect to unbundling.  

While unbundled legal services are not always appropriate for the particular case or client, it can be a win-win-win for clients, attorneys, and courts. Often, unbundled services are seen as a way to help clients who would not otherwise seek legal help and would represent themselves in a matter. This allows clients to secure assistance for specific parts of their case at a price they can afford. Because offering limited scope representation is a way to combat our access to justice issues, the ABA has an extensive resource center that is a great place to find tools and resources to get started.

Sliding Scale Fees

This is a model used to offer lower prices based on a client’s ability to pay, which is often determined by income and/or family size as taken from the Federal Poverty Guidelines. This means that what each client pays will be determined by their income, rather than you just charging your typical rate. 

You can use a sliding scale system for any kind of pricing arrangement, including flat or hourly. You simply discount your hourly or flat fee rate based on their income. For example, you might offer 50 percent off your rate to anyone at or below 150 percent of the federal poverty guidelines, 40 percent off to anyone at 151-200 percent, and so on. So those with lower incomes will pay a lower fee, giving those clients who need legal services greater access to otherwise out-of-reach attorneys. 

Want to hear insight from a Lawyerist Lab member who has successfully branded her practice around sliding scale fees? Listen to Episode #277 with Emily Cooper.

Retainers 

People use the term “retainer” to mean two very different things. Here, we’ll break it down and discuss retainer deposits and traditional retainer fees. 

Retainer Fee/Deposits 

A retainer fee when used as a deposit is not actually a pricing model. Instead, this is the upfront payment or deposit many firms (especially those that bill by the hour) require a client to pay at the beginning of the engagement to secure future payments. Because this money is not yet earned, it is not the firm’s money and must be deposited into a trust account that the lawyer opens on the client’s behalf. Many firms will then bill against the retainer. This means that as they complete work and issue invoices, they will move the amount of money needed to pay those invoices from their trust account to their operating account. When the retainer reaches a certain threshold, the firm will ask the client to replenish the retainer. 

Traditional Retainer Fee  

This type of retainer fee is also known as a “true retainer” or “classic retainer.” In this case, the client agrees to pay the lawyer a sum of money solely for the purpose of ensuring the availability of the lawyer to represent her over a given period of time. It is not payment for the lawyer performing legal services. Because of this, the true retainer is earned upon receipt because it takes the attorney out of the marketplace and prevents the attorney from taking on other legal work that may conflict with that client. These types of arrangements are rare in today’s legal marketplace. 

Next, it’s time to set your prices.