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This article is an excerpt from Winning Alternatives to the Billable Hour: Strategies That Work, Second Edition, by James A. Calloway and Mark A. Robertson, published October 2002.

The majority of lawyers in the United States practice in a solo or small firm setting. These lawyers often face different challenges concerning pricing for their services. Yet, in many ways, a smaller-size practice—with its lack of bureaucracy and certain institutional traditions—allows lawyers to move more nimbly in adopting changes.

Solo and small-firm lawyers are not homogeneous. Many small firms operate in the same manner as larger law firms and serve similar clients. This is particularly true for small firms that originally existed as practice groups of larger firms. When lawyers who spent their early years practicing in large-firm settings move to smaller-firm settings, they tend to continue practicing in the same way they always did.

But for many solo and small-firm lawyers, there is a significant difference between their practices and those of their large-firm brethren. This difference relates to who or what might be a typical client. Generally speaking, larger law firms spend most of their efforts representing businesses, and the bigger the business clients are, the better. This is not to say that law firms of all sizes do not represent individuals. But generally, corporate clients constitute the bedrock of a larger firm’s clientele.

There are significant differences between these typical small-firm clients and major corporate clients. The smaller-business owner often has more in common with a consumer when making any type of purchasing decision than a large corporate client engaging in business-to-business negotiations with a large law firm. Small-town lawyers, suburban lawyers, and those in other practice settings who represent mainly consumers have some history of the use of flat fees, contingent fees and various methods other than the billable hour. For easy reference and lack of a better term, we shall refer to these lawyers collectively as Main Street lawyers.

Hourly billing is an objective method of determining the cost of delivery of legal services and for many years has served ad the benchmark for determining the price, or value, of the legal services as well. But for the clients, or potential clients, of the Main Street lawyer, the billable hour may seem more like a blank check payable to the law firm than a reliable method of determining a fee.

In consumer-oriented practices, lawyers deal with a greater percentage of relatively unsophisticated clients; clients who are often inexperienced in dealing with lawyers. Whether a matter concerns an adoption or an arrest, a will or a workers’ compensation claim, the simple fact is that a consumer client may have no prior experience with the legal subject matter and had no prior need for a lawyer.

Therefore, some of the techniques used in negotiating a fee with a client with experience in purchasing legal services like an insurance company or a bank do not apply to the average consumer client. There is no give-and-take discussion about various alternative billing methods when the client has little or no understanding of the process.

For consumer legal services, fees are often based upon market forces and lawyer experience, rather than negotiation with prospective clients.

But these unsophisticated clients are those who might most appreciate the simplicity and clarity of many alternative fee arrangements.

What Will It Cost?

Suppose a potential client makes an appointment with the lawyer about a relatively straightforward probate proceeding. The Main Street lawyer discusses handling the matter and discloses his or her billing rate. For many consumer clients, a statement of the lawyer’s hourly rate—the cost per hour—is not sufficient information. Almost immediately, the next question is, “How many hours will it take?” or, “What will the total cost be?” This is when lawyers often give a most unsatisfactory answer: “It depends.”

It is not surprising that this can be a source of frustration for the potential client. After all, most consumer purchasing experiences do not proceed like this. Throughout retail stores, price tags and signs abound. There, the price is stated in advance. Imagine buying a refrigerator after being told that the final price will be set only after you agree to make the purchase! Even a car dealer will make a firm offer. In fact, the Main Street lawyer has a fairly accurate mental understanding of what an average fee for this matter will total. But the estimate communicated to the client is often couched in broad terms, with many disclaimers. The lawyer cannot give an exact quote when the number of total hours to be expended is unknown to the lawyer, as well as the client.

Although some may view this reluctance as an attempt to conceal something from the consumer, in reality, the lawyer is exercising time-tested judgment. The experienced lawyer knows that if an average fee is mentioned, the client will focus on that number as “the fee.” If the lawyer quotes an estimate of $2,000, the lawyer will view a final total billing of $2,165 to be right on target. But too many clients would respond with, “No, wait, you said $2,000.” So the lawyer learns to express the estimate as a range, with plenty of room at the top end of the range to ensure that the total fee will almost certainly be less than the highest number mentioned. In this example, the lawyer, if pressed, would quote a range from a low of $2,000 to a high of $4,000 or $5,000.

Imagine how much more consumer-friendly and non-threatening this transaction would be if the lawyer simply said, “This probate case can all be yours for the low price of $2,450.” We are all consumers. We understand the attraction of simplicity. We understand the value of limiting the risk of a charge being much higher than anticipated. It is disingenuous to deny that we would prefer the certainty of the fixed fee if we were the client.

“Wait,” many lawyers would cry, “there are many variables, and many contingencies.” These are often outside the lawyer’s control. The lawyer understands that an unreasonable opposing counsel, a procrastinating opposing party, or a recalcitrant judge can increase the workload by several orders of magnitude. The lawyer does not want to bear that risk, and the hourly rate serves that purpose very well. Whether it is a necessary party who cannot be located for service of process or an unanticipated and complicated factual situation, if the matter becomes more burdensome, the lawyer invests more time and the lawyer should be paid more.

But the lawyer does know the variables—far better than the client. Lawyers know they will treat a client fairly, but they also want to make sure they are not treated unfairly by working many extra hours without additional compensation.

In fact, though, in a matter involving contingencies that might dramatically change the work involved, the fee arrangement need not be based upon only one flat fee. The fee agreement may cover numerous contingencies: if event A happens, one fee will be charged; if B happens, then another fee. The most important thing is for the unsophisticated client to understand and comprehend fees quoted in this manner, without referring to an hourly billing rate. The client no longer must ask, “How many hours will it take?” Where the sophisticated and experienced business client may need a jointly developed plan based upon the experiences of both the client and the lawyer, the consumer client often needs information, explanation, and less uncertainty about the future. Written materials for the client to take home and review are extremely useful in these situations.

For many consumer cases, so-called alternative pricing can be quite naturally incorporated as a part of the overall case plan. Consumer clients desire certainty and as much information as possible about the uncharted waters ahead. Hourly billing may be simple for the lawyer, but a consumer will appreciate the clarity and certainty of a fixed fee—even if that certainty is embodied in a road map with a dozen possible total fees, depending upon future variables.

Pricing Structure Can Be The Basics Of The Office Legal Services System

The pricing structure, when properly communicated to the client, can provide the basis of the attorney-client agreement and the case plan. The less familiarity the client has with the situation, the more detailed the disclosure should be.

In the probate case example, the consumer may indicate she will likely hire the Main Street lawyer. She then asks about the fees. In response, the lawyer produces not an intimidating document entitled “Attorney-Client Fee Agreement,” but one called “Case Plan.” This document appears in the form of a timeline, and may be more graphically designed than the standard legal document. The lawyer explains the anticipated chain of events—drafting and filing documents, sending notices, and so on. The document clearly notes the fees at each stage of the proceeding. The document or set of documents may also include many typical provisions and disclaimers. Much of this form can be preprinted, but because the matter may determine certain variables (such as sales of property within the probate), the form has blanks that are completed during the interview.

Of course, there may be unknowns and unknowables, in which case the lawyer makes a good-faith estimate in writing. Yet, the end result is a complete document detailing the entire course of the legal matter, the anticipated timing of events, a likely date of conclusion, an estimated fee, and the probable maximum fee.

Some lawyers object to attaching any estimate to an unpredictable fee. They may also disagree with giving clients time lines for completion of tasks, no matter how general. After all, probate cases sometimes drag on. But the message to the client should be that they do not “drag on” in this lawyer’s office. The beauty of a case plan is that it is constructed to interlock with the lawyer’s office procedures. The case plan provides a road map for the lawyer’s staff, detailing tasks and anticipated timelines. The law firm’s system provides not only for the drafting of required documents, but for important standardized client communications. Instead of receiving two-sentence transmittal letters, the client receives detailed status reports accompanying file-stamped copies, which refer to events outlined in the case plan. If contingencies occur and trigger a fee increase, the system generates a thoughtful explanation and discussion of what has transpired, to accompany the request for additional fees. The client has a reference guide throughout the matter to judge the lawyer’s performance against predictions.

With this approach, the Main Street lawyer is highly motivated to improve, embellish, and streamline the system. Compared with other clients, the Main Street lawyer’s clients may receive superior, regular, and more detailed communications, because the lawyer has judged that a few “extra” letters are less expensive to the firm than receiving numerous “extra” telephone calls from the client.

And what of the estimate of the unknowable fee, when the fee was underestimated due to an event that has now improbably occurred? Will the lawyer be judged by his or her own candor? (“Yes, I stated probably no more $2,000, and the charges are now $3,500. But, . . . ”) This is yet another aspect of the system that the lawyer should design and prepare in advance. When it becomes evident that an estimated charge may be exceeded, a letter of explanation can be sent to the client immediately, not when the final fees are requested. (“Please be advised that A and B have occurred, and the costs are exceeding our original estimate. You may contact me at no additional charge if you wish to discuss this.”) This is not to say there will never be a time when a consumer manages to use a fee estimate against a lawyer, even if only for bargaining position to compromise the final fee. But the system functions to create understanding, predictability, and trust. A client is then predisposed to view a contingency as something that happened in his or her particular case, and not as the lawyer simply deciding to charge more.

The benefit for the Main Street lawyer is that the system encourages and rewards efficiency. Exploring advanced document assembly methods holds no downside. If the lawyer notes he or she typically receives a number of calls at a particular stage in the representation, for which the lawyer receives no additional compensation, then the lawyer is motivated to improve communications in that area proactively, perhaps by covering the area better in the initial interview or perhaps by adding to the language contained in a standard client communication during this time frame. The Main Street lawyer constantly hones and improves the system, while the clients benefit from an ever-evolving model of client service, explanation, and communication.

As the system improves, it is possible that fees charged could decrease while profitability and client satisfaction increases. But the converse is true as well. An in-depth examination of office procedures and the tasks to be accomplished on behalf of clients compared with the local market rate for certain routine services may drive a lawyer to conclude that certain practice areas are unprofitable and should be dropped. It may also be true that to be a full-service law firm for consumer clients, a small firm in a small community may need to handle some matters that are only marginally profitable.

But a Main Street lawyer cannot “wish away” market forces, the impact of technology on the practice, or consumer attitudes. The simple fact is that many law offices have not arranged their operations for maximum efficiency. A lawyer may believe that a certain matter requires at least ten hours of lawyer time. But by fine-tuning and improving the system, the amount of lawyer time may be drastically reduced. The lawyer can use technology-based systems and/or support staff to move into a more profitable position. Some so-called routine legal services may be done for less and still be profitable. And the lawyer will then have more time available to work on other matters.

Conclusion

For the Main Street lawyer representing mainly consumer clients, the decision to embrace alterative billing is not as simple as changing from hourly fees to flat or fixed fees. Rather, it involves a potentially painful examination of office procedures, use of staff, and use of technology. It involves an understanding of consumer attitudes, even when the lawyer believes such attitudes are incorrect and unjustified. It often involves changing the lawyer’s mind-set from a case-by-case approach to a system of processes focused on efficiency. It involves presenting the client with a road map or case plan in advance of representation. The result should not be a “cookie-cutter” or “assembly line” style of practice, but rather a system where delegation and the creative use of technology free the lawyer from as much routine work as possible, leaving the lawyer with more time available for sophisticated legal problems and face-to-face client consultation and counseling.

In many ways, the search for the completely efficient, productive office system is like the quest for the Holy Grail. Improvements and refinements can— and should—continue. But the promise is not illusory. This quest can lead to an office where the clients are more informed and more certain about the fees they will pay, where more information about the progress of a matter flows regularly to the client, where the client is given realistic goals and expectations by which to measure the lawyer’s delivery of services, where the lawyer is more confident that matters are being handled efficiently, and where the lawyer is rewarded for efficiency by increased profitability.

This article is an excerpt from Winning Alternatives to the Billable Hour: Strategies That Work, Second Edition, by James A. Calloway and Mark A. Robertson, published October 2002. This book is a great resource for the law office looking to free themselves from the quagmire of hourly billing! Learn the economic and client service advantages of alternative law firm billing methods, the various billing methods currently available, and how to select and implement the right alternative billing method for law firms of all sizes. A diskette is also included containing all the valuable forms, templates and proposals found in the book. ISBN: 1590311175 (320 pages)