Planning for Flat-Fee Billing
Flat-fee billing has been around in the legal profession for a long time. While there are arguments about the pros and cons of fixed fee versus hourly billing arrangements, the issue comes down to clients perceiving a widening gap between the amount they are charged and the value of the services provided. Flat fees provide more certainty for them, up front.
For law firms, proper and thoughtful planning will be the key to making flat-fee billing, or any other billing method, viable and successful. And no matter how you change your billing practices, timekeeping will play a critical role. Yes, clients can perceive the value of flat-fee billing, but you must continue to track how much time it takes to do things. Your timekeeping data will become a powerful planning tool, rather than something you pass through to the client, and you will get better at estimating what fee you need to charge to cover your investment and make a profit. Here are five things to consider when making the shift to flat-fee billing.
1. Shifting focus to historical time investments. You will want to focus more on recording time using task-based billing codes to understand how much time it takes to perform specific tasks. This will help you to make sound flat-fee billing arrangements.
2. Improving time management. Firms that use flat fees pay constant serious attention to their timekeeper capacity and utilization. You will need to get serious about the proper leveraging of timekeepers to maximize client value, provide more predictability and minimize firm cost. In other words, assign the right timekeepers for the job.
3. Sticking to budgets and time-tracking procedures. You will need to train timekeepers to review and live by case or matter budgets, and establish guidelines for recording time. Despite its many imperfections, tracking time is a logical means of measuring your efficiency and managing productivity potential.
4. Evolving flat-fee systems. As you learn more about your costs and better understand clients’ concerns, naturally you will refine your pricing. Your pricing systems might include blends of hourly rates and fee caps, menu, project and portfolio pricing. The key is to keep the system as simple as possible. Many firms come up with pricing that is too complex, and clients become frustrated and lose interest.
5. Profitability. Understanding how much it costs to produce a billable hour per task and per timekeeper is essential to flat-fee pricing. Firms that are successful are heavily focused on efficiency and value, and have changed their internal behaviors—including timekeeping and economic monitoring.
Frederick J. Esposito, Jr. is the Director of Administration for Meyer, Suozzi, English & Klein, PC, a regional law firm based in Garden City, NY. Fred has more than 20 years of law and accounting firm experience. He writes and speaks extensively on a wide-range of legal management topics including billing, collections, financial and profitability models, risk management, human resource development, project management for attorneys and alternative fee arrangements.
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