Alternative fee arrangements (AFAs) are designed to make your services more accessible to low and moderate-income clients. Examples of alternative fee arrangements include fixed or flat fees, contingency fees, and fee-shifting. There are pros and cons to every arrangement, but if you have decided to set up such a program in your law office, here are some tips to help.
Tip 1: Consider Fee Caps as a Billable Hour–Alternative Fee Hybrid Arrangement
With fee caps, hourly billing is capped at an agreed-upon maximum for a given case, project, or service. While this arrangement is a nice way to ease into AFAs, it is not without risk. Let’s say you agree on a $1 million fee cap, and the work ends up costing you $2 million. The client will expect you to honor the arrangement, even if it bankrupts the firm. This tends to benefit the client more than your firm, but it is a nice way to set yourself apart from other firms.
Tip 2: Holdback Fee Arrangements Serve as a Modified Contingency Fee
A holdback is a type of partial contingency fee arrangement. The law firm will typically receive a guaranteed part of its fees (maybe 80 percent) while the remainder will be contingent on the case’s success. Sometimes this arrangement is combined with a success fee that provides a bonus for a positive result. This arrangement has the benefit of better alignment of the interests of the client and the law firm. There is risk, however: If you do not clearly define expectations and the metrics for success up front, it could lead to conflict over whether the holdback or success bonus has been earned.
Tip 3: Fixed Fees for Single Engagements
This arrangement calls for firms to set a hard price on several well-defined services. With this AFA, a single fee is agreed to for either the entire matter, each distinct phase of a matter (e.g., discovery, summary judgment motions, trial, etc.), or each distinct task or unit (e.g., deposition, motion, expert, etc.). This arrangement carries the risk that a matter will be much faster and simpler than expected (benefiting the lawyer), or significantly more complex and time-consuming then anticipated (benefiting the client). Fixed fees will not be right for every case. It will work better when a client has a large number of similar, but separate, matters.
Tip 4: Sliding-Rate Fee Arrangements
This law firm pricing model is based on a client’s ability to pay, which is often determined by income and/or family size as taken from the Federal Poverty Guidelines. This means that what clients pay, whether hourly or as a flat rate, will be determined by their income, rather than you just charging your typical rate. This allows those with lower incomes to pay a lower fee, giving them greater access to otherwise out-of-reach attorneys.
Tip 5: Subscription Alternative Fee Arrangements
Under a legal subscription plan you make your services or a bundle of services available for a fixed price on a recurring basis. It’s like Netflix, but for legal services. Having legal subscription plans can create a steady stream of revenue for your law firm and help clients help themselves. It works well for small business clients, giving them control over some of their routine legal tasks, while giving you a steady stream of income. The key to creating legal subscription plans is to break your work down into individual legal products. Think of ways you can turn your services into products. For example, you could have a set of online forms with instructions that clients can purchase at a flat rate for certain things, like setting up a business entity. If you are feeling really tech savvy, you can automate the entire process for clients so the drafting work is done automatically for them.
The key to any alternative fee arrangement is open and transparent communication with your client. AFAs can appear in some form or fashion in all practice areas, and for many matters they offer a better value for clients. These arrangements are good for you as a lawyer, too. They can help you to distinguish yourself in the market, open up client opportunities, and allow you to focus on providing client value rather than on the amount of time you are billing.