I recently wrote about the evolution of law firms, from prominent downtown addresses to distributed virtual law firms that have adapted to suit today's businesses. (see "Changing the Law: How Virtual Law Firms Are Increasingly Changing the Attorney-Client Relationship"). As the legal industry evolves, attorneys increasingly explore alternative billing practices to serve their clients better and remain competitive.  

Traditionally, you consumed your legal services by the hour. Traditional law firms and their hourly billing model have long had their critics. These law firms employ many associates and a smaller number of partners. Each lawyer, depending on experience, charges a unique hourly rate. The more experience, the higher the hourly rate. On average, hourly rates range from $250 for new associates to $2,500 for senior partners. The flaw with this model is that, for many matters, the lawyers start billing their hourly rates, and the client is left to pay the final bill, no matter the cost. This approach can be very unsatisfying for clients when they receive the bill and can lead to many difficult conversations between attorney and client. Many compare this model to ordering a meal at a market price, where you agree to pay each person involved in bringing the food to the table (from farmer to server) at their market price. The catch is that you only know the final price once the meal is finished. This billing approach often leads clients to avoid calling their lawyer because of fear of the uncertain total costs associated with the meter running. As a result, businesses are increasingly looking for alternative billing practices over the traditional hourly billing model.  

Here are a few examples of alternative billing practices that law firms are adopting:

Fixed Fee Billing: Fixed fee billing involves setting a predetermined fee for a specific legal service or project. Fixed fee billing is perfect for well-defined activities such as business formation, bankruptcy, family law matters, estate planning, and criminal defense such as DWI defense. This approach allows clients to understand the precise work the lawyer will be doing and how much the job will cost before it begins, providing them with greater peace of mind and financial predictability.

Contingency Fees: Contingency fees are typically used in personal injury or other civil cases where the client's recovery is uncertain. In this model, the law firm is only paid if the client wins the case or receives a settlement. The fee is usually a percentage of the recovery amount, and clients are typically responsible for the firm's costs.

Value-Based Billing: Value-based billing is a hybrid of flat and contingency fees; value-based billing involves setting a fee for specific tasks and adding a kicker to achieve additional associated objectives. This model considers the client's business objectives and the potential impact of the legal service on those objectives. The fee is determined by the client's value of the service rather than the time spent by the attorney. Value-based billing can work incredibly well for certain business activities, such as selling a business. A firm can charge a basic fee for preparing the business for sale (such as setting up a data room) and pay additional compensation when certain sales-related milestones are achieved. 

Subscription-Based Billing: Subscription-based billing provides clients with ongoing legal services for a fixed monthly fee. Subscription-based billing is gaining popularity as it offers clients an on-call legal team without the associated costs of employing an in-house legal team. When done correctly, subscription-based billing offers clients a cost-effective way for clients to access legal services on an ongoing basis and allows businesses to get answers to everyday issues without fear of the clock. 

Alternative billing practices can benefit both clients and law firms. Clients can benefit from greater transparency and cost predictability, while law firms can benefit from improved client relationships and a competitive advantage in the marketplace. As the legal industry continues to evolve, more law firms will likely adopt alternative billing practices to meet the needs of their clients and remain competitive. Clients should always ensure that they understand all aspects of the attorney-client relationship. Compensation and the scope of work should be fully detailed so that clients understand what they will pay and when they will pay it.

The information provided is only for general information and is not meant to be legal advice.  Information on this website, including third-party links, may not include the most up-to-date information, so you should contact your attorney to discuss your particular matter. Third-party links are provided for convenience only and are not an endorsement by the Dohrwardt Law Firm.