Maximizing Profits on Flat Fees: Disconnecting Services from Time
The legal profession has had a long and storied tradition of hourly billing. We set a rate, track our time, and then bill once a month for our fees. But although many firms still cling to it, more and more others are switching to a flat fee structure.
At this point, 95% of my practice is flat fee (I don’t do contingency work). The other 5% is work where I don’t have a clear idea of the time commitment for the work and don’t want to short change myself.
Structuring Flat Fees
On matters where I have a clear idea of how much time something will take, I simply multiply my hourly rate by the number of hours and quote a fee. I then track my time on every case to be sure my time estimates remain accurate. If I find myself exceeding time estimates on a particular service, I and as such I am losing money, I increase my fees to compensate.
But It’s Not Just About Time
There is a story I heard years ago about a property developer that owned several office buildings in Manhattan. One building was plagued by mold on the walls, and the methods they had tried to get rid of it hadn’t worked. Many experts were quoting millions of dollars to replace the drywall with something that was mold resistant.
They finally consulted with a well-renowned chemical engineer to see if he could come up with a solution. He quoted an initial fee of $25,000 to take a look at the building and then craft a solution. The developers agreed, and he toured the building.
After looking around a bit, he took out a pad of Post-It notes, wrote down the name of a chemical to use to remove the mold, and handed it to the developer. He then said,
“$25,000 please.”
The developer was rather put out with this, despite being quoted over $1 million for other solutions, and objected to the fee. “But you just walked around for half an hour and looked at the walls!”
The engineer then smiled and shook his head. “Apparently there has been some misunderstanding. You thought you were paying for my time; I thought you were paying for a solution to your problem.”
Sell Your Solution, Not Your Time
The key to high profits on a flat fee structure is to disconnect your services from the time it takes you to render them. To do this, you need to build the value of your services in the minds of your prospective clients.
While you are doing this, they will most likely come up with a number in their heads that will far exceed the amount you quote. This will make them more receptive to retaining you, and you will convert more leads.
I can’t tell you the number of times I have had potential clients give a sigh of relief and exclaim how reasonable my fee is for what I propose to do for them. Be sure to build the value first and quote the fee at the end, and you will see the same thing happening.
And Make More Money!
Also, by disconnecting the service from your time you will be able to take on more clients and make more money than you would if you charged by the hour.
For example, let’s say your hourly rate is $300. If, by some miracle, every hour of your day in a week is billable, that’s 40 x $300 or $12,000. Then, let’s say you estimate it will take three hours to render a particular service, and you quote $1,500 instead of $900. You fill the same 40 hours doing that, and you will make $20,000 in that same week ($1,500/3 hours is $500/hour; 40 hours at that rate is $20,000).
Now, I’m sure that your jurisdiction has an ethics rule about charging reasonable fees, so you need to be sure that what you quote is not outrageous. But no matter what, adding a premium to the “time x rate” equation will make you more money in the long run without you having you spend more time in the office.
Want More?
Was this helpful? Intriguing? Thought provoking? Well, there’s more where that came from! You can get great business and professional practice tips in your inbox every week by subscribing to my newsletter! You’ll get actionable, bite-sized tips every Friday to help you make more money by spending less time and providing better legal services!
Want even more? You can avail yourself of the many resources I provide free of charge. Whether it be my newsletter, my posts on LinkedIn, my videos, or my web site, you will find useful, actionable information and tools for being more successful.
Related Topics
If you liked this information and found it useful, then you might like or need these others:
