Increasing Your Fees
Combination Fee Opportunities: Shift Slowly to Alternative Billing
By Arthur G. Greene
Despite predictions of its demise, hourly billing continues to be the predominant billing method that most lawyers employ. Its survival may be attributed to the lawyer’s unwillingness to take risk, the client’s distrust of the lawyer’s motives or, perhaps, the ease of mechanical computerized billing. Regardless of the reasons, many lawyers are searching for a way to break the cycle and offer alternative billing methods to their clients.
• Start with a low-risk experiment. There are ways to shift to other billing methods in a measured and gradual way. In fact, some matters are perfect low-risk experiments. For example, how many times in an initial client interview has a client presented you with an interesting case and asked you to handle it on a contingency basis? The client cannot afford your hourly rate. At the same time, you realize that you cannot afford to take the risks involved in handling the matter on contingency. Although you would like to take the case, you turn the client away. However, you need not do so. This situation presents an opportunity to experiment with a combination flat fee plus contingency.
• Try a mixed arrangement. Instead of turning down the case, you tell the client you will handle the matter for a flat fee of $10,000, payable in 10 monthly installments, plus a contingency of 20 percent of what you recover. You can set the amount of the flat fee and the contingency percentage based on the specifics of the individual case. The important point is that you are taking some risk, but not all the risk. The client is providing you with some cash flow, but the client is not subject to the uncertainties of hourly billing. This approach represents a good compromise for cases that you would otherwise turn away. It will work in business disputes, collection matters, tax abatement appeals, eminent domain cases and other cases in which clients seek money damages.
• Share the risk, keep the cash flowing. There are a number of other combination fee methods that can be tailored to fit specific situations. For example, your fee could be based on a reduced hourly rate plus a contingency for what is recovered. Or, you might use a fee based on an hourly rate to investigate a matter, followed by a flat rate for carrying out the work. Whichever combination you use, keep your end goals in sight:
To share the risk with your client
To create adequate cash flow for your firm
To be able to take cases you might otherwise have to decline
• Shift gradually to alternative billing. Pricing legal services is no easy task, and no lawyer can take the risk of converting all cases to alternative billing methods at one time. The process has to be gradual and the learning curve slow. Combination fees provide an excellent opportunity to begin the move to alternative fee methods. A good goal is to shift 10 percent of the work to alternative billing methods each year. The best place to start is with combination fee methods.
Arthur G. Greene (firstname.lastname@example.org) is a partner in Dewhurst & Greene, PLLC, in Bedford, NH. He chairs the Law Practice Management Section Finance Committee and is editor of the ABA book Strengthening Your Firm: Strategies for Success. He is the Section Liaison to the ABA Commission on Billable Hours.