Why Flat-Fee Work Is the Future of Law Firm Pricing
It’s no secret that the pandemic has changed the legal industry forever. But even before the crisis, the traditional law firm pricing model was on its way out, making way for alternative billing practices like flat-fee (or fixed-fee) pricing.
Back in February, Thomson Reuters and the Georgetown Law Center on Ethics and the Legal Profession published a joint report on the state of the legal market in 2020. One of the key takeaways? That law firms will keep moving towards an “integrated solutions model” and shifting from attorney services to client outcomes.
The report suggested that lawyers should think about ways to offer more “value-based pricing” for their clients. Simply put, firms that opt for flat-fee work and other alternative price models now may be better prepared for the times ahead.
What Is Value-Based Pricing (and Why Is It Useful?)
Value-based pricing is a method of price setting driven by customer value perception. Instead of accounting for production or service costs, value-based pricing focuses on the customer’s needs. This is why it works well for professional services: It’s ideal when you need to emphasize the true value of your offerings over the competition.
Unlike other professionals, however, lawyers don’t always have a simple answer when their clients ask the inevitable question: “So how much will this cost?” Billable hours and retainers may work better for some legal matters, particularly if there’s an opposing party involved.
Even so, flat fees are already common for the following legal services:
- Will preparation
- Family law modifications
- Uncontested divorces
- Standard immigration matters
- Property insurance claims
- Individual bankruptcy claims
Because flat fees are paid upfront and represent the total cost of all legal work, they are extremely easy for clients to use and understand. Flat fees also motivate both parties to resolve legal matters fast. The key is knowing how – and where – to introduce flat-fee pricing.
When to Consider Flat-Fee Work
As noted in this post by the American Bar Association, attorneys have to find a “sweet spot” where they can deliver results without becoming burned out. And while flat fees can actually improve your profit margins over time, it may take some trial-and-error to get there.
Here are a few things to keep in mind when pricing on a flat-fee basis:
- Know your target clients. With value-based pricing, you have to commit to learning more about your target demographic. Try gathering feedback from your former clients or reviewing old cases to determine where flat fees could be helpful.
- Test out a capped fee structure. For those new to flat-fee work (or concerned about getting burned,) it’s a good idea to start by capping your fees. That way the client can still budget – and you get the freedom to experiment with costs.
- Restrict it to “productized” services. Most flat-fee devotees recommend that you only use it on products or pre-packaged services. If you do use flat-fee pricing for one-off cases, be sure to think through every possible hidden cost and filing fee.
- Modify the flat-fee model as needed. The best part about flat-fee pricing is that you can enjoy its benefits even with modifications. Some attorneys recommend using “staged” fees, with flat costs attached to each stage of the legal process. Others suggest using billable hours to account for unexpected work.
Regardless of how you use flat-fee pricing, the benefits are clear. In an uncertain economy, many clients are looking to preserve their cash flow position, and they may be hesitant to hire counsel on a retainer or hourly basis. Flat-fee structures help you win over those clients and move your law firm into the future.
Legal Pricing Made Easy
When you give your clients plenty of upfront pricing options, you increase the odds of making a sale. At LawFundAR, we make flat-fee work a little easier with Installments: An “advice now, pay later” plan that allows clients to cover their fees in 4 interest-free installments. We also offer a fee financing solution that gives clients the chance to pay over 3 to 12 months, while you get 100% of the invoiced amount upfront.
For more information on our legal payment plan and installment options, please contact our team today!