We abandoned hourly billing long ago. I was happy to see it go. We switched to flat fees (and, by the way, I’ve created a resource page with lots of flat fee info/downloads).

We’ve been setting and collecting flat fees for so long that I can’t even remember when we made the switch. It has been a very long time (certainly more than a decade).

Now that all this time has passed, it’s interesting to note that:

• We’re still in business.
• Our competition hasn’t crushed us by making us work more than we expected on a file.
• Clients don’t abuse the system.
• Our clients still love the certainty and predictability.
• We haven’t had a megacase crush us with unexpected work.
• The world hasn’t ended.

Those are some of the many things lawyers worry about when they talk to me about making the switch. I tell them not to worry. They worry anyway.

I’m here today to tell you that the evidence suggests that the worry is unwarranted.

In fact, I’m pleased to say that, after all these years, we:

• don’t have much upset with our clients (not to say none, but a lot less than back in the hourly billing days),
• have zero accounts receivable,
• don’t have any personnel committed to the billing/collection process,
• don’t have to manage/upgrade billing software, and
• never have to call a client about replenishing our trust or about paying an outstanding bill.

Bottom line (and I know I overuse that term), we’re able to charge a healthy fee, spend less on accounting, and make our clients happy. It works.

The Plusses of a Fixed-Fee System

There are by-products of using a fixed-fee approach: some anticipated and some entirely unexpected. These are some of the positive developments:

1. Innovation. We’ve innovated like crazy. We’ve had the resources to invest in software development, training, hiring, and work arrangements. We’re incentivized to do a better job for our clients, and they’re not complaining about who’s paying for it.
2. Efficiency. When we adopt new systems and technologies, we win. That’s good for us and, ultimately, good for our clients. We’ve invested hundreds of thousands of dollars in our practice management system while I listen to lawyers complaining about spending $75 a month on a cloud-based product. They view the money as overhead. We view it as a way to cut the cost of delivering our service, resulting in increased profit.
3. Creativity. Back in the hourly billing days, we had to get our clients’ permission to pursue some adventurous legal strategy. If it was expensive, they might resist. Now, the expense is the same, regardless of whether we go for it. They usually say, “Go for it.” As long as the risk is on us, our clients normally appreciate our proposing what might be a risky or expensive approach.
4. Advanced technology. We’re incentivized to invest in the latest and greatest technology, regardless of whether it’s a new laptop or an advanced e-discovery application. There’s nothing holding us back, and there’s no worry about how the costs will be passed along to the client. We factor the cost of technology, along with everything else, into formulating the fee. We’re surrounded by shiny objects.

What You’ll Lose (Happily) With Fixed Fees

Lots of good things come from the switch to fixed fees. And, wonderfully, some bad things stop happening when you make the transition.

1. Upset clients. Of course, fixed fees won’t eliminate all client unhappiness. But they sure help. So many upset conversations are sparked by the phone call about a fee. Eliminating those conversations goes a long way toward eliminating the upset.
2. Accounting bureaucracy. You can get rid of a big portion of your accounting process. That likely means eliminating some personnel and some software/hardware. Of course, you’ll also eliminate all the management that went into monitoring that process. What a relief.
3. Upset lawyers. The upset between associates and their boss is often traced back to a failure to deal with fees, billing, or talking to clients about those issues. The associate drops the ball, and the partner’s head explodes. Eliminate hourly billing, and you eliminate many of those challenging situations.
4. Gifts. Under the hourly billing system, the closing of a file usually involves collecting/negotiating the outstanding balance. With fixed fees, the end of the case involves ending the connection and bringing your time with the client to an end. People feel a need to mark the occasion. It’s weird when clients start showing up with champagne and baked goods for you. With fixed fees, you’ll find a dramatic increase in client gifts.
5. Quiet phones. Fixed fees are a competitive advantage when everyone else is billing hourly. Your phone will start ringing more often. Clients appreciate the certainty of a fixed fee, and the word gets around.
6. Write-downs. With fixed fees, you collect your fee in advance. You get 100% of what you’re charging. You no longer adjust bills (never up, right?), and you no longer write down the balance at the conclusion of the matter.
7. Clients failing to get advice. Clients hesitate to call when they’re paying hourly. They make cost/benefit decisions about acting without your advice. Shockingly, they sign things without calling you. They mess up their/your case. What a disaster. After the fact, they explain that they didn’t want to get billed for the call. This scenario is really horrifying when you learn something while you’re in court. They should have told you earlier, but they didn’t because of the fee. Now, you’re finding out at the worst possible moment.

Fixed fees won’t change everything in your practice. But they sure change some of the things that make practicing law unpleasant. They’re not for everyone or for every practice area, but they’re worthy of consideration. For more information and resources on fixed fees, visit my fixed fee resource page.