The Flat Fee Domino Effect

You’ve heard of the domino effect? One change affects the thing next to it, and that changes the thing next to that, and boom, boom, boom…suddenly everything has changed.

The first change creates a chain reaction. Where will dominos fall? Nobody knows exactly. That’s why it’s a scary concept.

The domino effect comes into play in many firms when the firm changes its pricing policies.

Price is a really big domino. Once you unleash a pricing change, it’s never absolutely certain how things will turn out. Unexpected, unanticipated, unpredictable change will take place when you change the price.

No plan survives first contact with the enemy, right?

Will the unexpected changes be good or bad? Not knowing makes it frightening.

A Hypothetical

The firm: Vibrant, healthy, growing firm in a big city with 25 lawyers and 30 other team members, including four handling accounting/billing. Ten of the lawyers are handling family law matters.

The billing model: Charging hourly fees at different rates per attorney. Taking deposits of $4,000 into the trust account at the outset of the case. Following up with clients to replenish the trust account balance as it hits a preset level.

The change: Move the family law piece of the practice from hourly billing to fixed fees.

The rationale: Firm leaders see an opportunity to increase revenue by assuming the risk and charging a premium fee. They believe client satisfaction will improve when clients are no longer receiving frequent dunning calls for trust account replenishment.

The firm makes the change and, nearly overnight, a number of dominos fall.

Here are some of them:

  1. Clients, previously paying a deposit to trust of $4,000 at case inception, are now asked for $10,000 or more. More than half of the clients who would have retained under the old model are walking away.
  2. Within a month, it becomes clear that the ten-lawyer family law department will soon be a nine-lawyer department. Projecting forward, the nine-lawyer department will likely be a five-lawyer department soon.
  3. The employee handling trust account replenishment is no longer busy. She’s spending her time at the water cooler stirring up dissent. She wants the firm to go back to the old way. She’ll be gone very soon.
  4. The firm acts decisively, within 90 days, and releases six employees including three family law lawyers. That throws the remaining employees into a panic. Upset is growing. Panic is in the air.
  5. Profits in the family law group are up.
  6. Upset client incidents are down.
  7. Phone calls from prospective clients are up, as the community becomes aware of the alternative to the unpredictable billable hour billing method.
  8. The type and quality of the clients are shifting. Their issues are different. The knowledge required to service them is changing.
  9. Lawyers, relieved of the timekeeping pressure, have more free time and, oddly, cause more internal strife as they grow anxious.
  10. Lawyers who used to grind out hours and bring in revenue are losing influence to efficient lawyers who close files quickly with their negotiation and people skills.
  11. Within six months, the family law department has half the employees (and thus dramatically lower expenses), and revenue remains steady.
  12. Firm leadership is feeling stressed about unused, expensive office space and is negotiating an exit involving a move to a new location.
  13. The office space move has inspired a “fight for windows” as the team argues about who should sit near the glass in the new office building.
  14. The family law group is objecting to the firm charging them for bookkeeping services that are now overkill for their section and should be assigned to other practice areas.
  15. The remainder of the firm, having witnessed the change in family law billing, is now debating a change for other practice areas. Of course, some see the change costing them their jobs and oppose the change. Others see an increase in profits and are advocating for a change. Many employees live in fear of the change due to potential job loss.

I could keep going, but once the dominoes start falling, it’s really difficult to predict the outcome. That’s the nature of change. One thing leads to another, and the pace increases and the predictions become inaccurate.

Will the firm survive the change to flat fees? Will the firm hold itself together as one change ripples into the next? It’s a difficult ride.

Will the firm come out of the transition as a lean, mean fighting machine with fewer fee hassles and dramatically lowered expenses related to cajoling clients to pay? Or will it disintegrate into a collection of solo practitioners? Change is difficult.

The Power of Pricing

I’d argue that changing pricing dramatically can be a very good thing. But there’s a big difference between increasing an hourly rate a few dollars and ditching hourly billing entirely.

Pricing becomes part of the culture. It’s part of the fabric that holds the firm together. Pricing affects who works for the firm, what positions they hold, and what work they do each day. Change pricing, and you unleash a powerful wave of change.

Change is good. But change is dangerous when poorly managed. The first step to effective change management is being aware of the fact that you’re knocking down the first domino.

If fixed fees still have some appeal to you, then check out the Fixed Fees Vault for more information.

Start typing and press Enter to search