The question of what to charge is one of the hardest for a new lawyer (or really, any lawyer) to answer. The largely unhelpful conventional wisdom is “don’t be the most expensive or the cheapest lawyer in town”. The free market answer is to charge however much you can without losing so many clients due to cost that it throws off your profit margin. Then, of course, there are the vague Rules of Professional Conduct which admonish you not to charge a fee that is “clearly excessive”.
Helpful.
So here is my take on setting hourly and flat fee billing:
Hourly
Start by identifying practices that share common traits with your practice, whether that be geography, practice area, firm size, etc. Make contacts with these lawyers, take them to lunch and ask to pick their brains. There is nothing wrong with that (so long as you are not conspiring to “set fees” within the meaning of whatever that anti-trust case is; the safe money is to ask them about what they did this past year, as opposed to discussing plans for prospective fee setting).
Lawyers who do exactly what you do, exactly where you do it, may be reticent to discuss fees with you. For that reason, I would suggest you put together a mosaic of different responses. You may find that some county across the state is similar (demographically) to your county. You may find lawyers in a distant county more willing to share information than people who may view themselves as your direct competitors. Also, finding lawyers who operate in a different practice area but with a similar client base will give you a broader perspective on who is representing your target market and how much they are billing.
From that mosaic of data, drawing your starting point requires a bit of artistry. You may not get it perfect at first. If you are charging too little (particularly with respect to your overhead) you will find that you are working all the time for fairly little profit — or worse. If you charge too much, good potential clients may refuse to hire you on a price objection.
Flat Fees
Flat fees are an excellent way to bill clients once you have determined your system for setting them, but even harder to get right than hourly billing. There are fairly few lawyers in NC — at least that I know of — engaged flat fee billing for all, or even most, of their client work. Start by Google searching on terms like “flat fee” or “fixed fee” and “lawyer”, etc. Once you find some folks (and there are some) who are doing a lot of it, start by talking to them — irrespective of their practice or geographic area. These are the real experts on setting flat fees.
Next, you have to think through the processes for which you would like to bill in flat fees. The key trait of a flat fee is that it is locked down once it has been negotiated. If you find a case or claim is much more difficult than anticipated, you may have under priced your flat fee and actually end up losing money. Tough luck. If you have an unexpectedly quick or easy case, you may have a windfall — though again, you have to be sure the State Bar isn’t going to flag that fee as “clearly excessive.” The key to that, by the way, is a happy client. Happy clients don’t file grievances or fee disputes with State Bar.
In order to bill in flat fees successfully, you’ll need a pretty high degree of familiarity with the legal process involved. Make sure you have run through some cases on an hourly billing method so that you have a good basis for choosing your target flat fees. From that target, you will also want to know which variables, if present, would make that case statistically more likely to be quick and easy or protracted and difficult. For example, I practiced divorce law for many years and billed in flat fees. In divorce, if the parties have children, it tends to make a case more protracted than if the parties are childless. No surprise there, it adds two claims (custody and child support) that would not otherwise be present. So, from a baseline flat fee, you would be wise to adjust your flat fee to accommodate the presence of issues that childless couples do not have.
You will need to have, or develop, a comfort level with knowing that in some cases your flat fee will result in fewer revenues than had you been billing hourly. Hopefully, the opposite is also true and it works out on the balance. It is pretty common, too, that if you take a case on a flat fee and it ends unexpectedly early or easily, that the client will request a refund of the “unearned” part of the fee — though if your work runs into unexpected delays and snags, you can bet your client would go crazy if you tried to renegotiate the fee. It’s really important that you talk through this potential issue proactively in the initial consultation. If you end up abiding by the flat fee contract in all the cases where you are “losing” money and refund fees in all of the cases where your billable rate is higher than you might otherwise charge, you will go out of business. At the very least, you will work far harder for far less than you otherwise should.
Lastly, hook up with the learning communities where these topics are being discussed. At the North Carolina Bar, for example, the Law Practice Management Section and General Practice, Small Firm, and Solo Section might be good places to interact with other lawyers interested in this topic. Many hands make light work.
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