Fixed Fee Legal Cases – Are You Making or Losing Money?

We lawyers often quote a fixed fee for handling a legal case. It is easier for the client to commit to an amount certain than to agree to an hourly rate and the uncertainty of how much the total attorney’s fee will be. It helps in getting the legal work but, if care is not exercised, the attorney can lose money on the file.

Using a building contractor as an analogy, if the price the contractor agrees to does not cover his cost of materials, labor, permitting and other costs as well as providing a profit, he loses money. Therefore, he has to be very careful to accurately estimate those factors that contribute to his costs. He also needs to build a cushion into the bid to cover unexpected expenses.

It would seem that the same would hold true for attorneys who quote fixed fees. However, that is often not the case. Many attorneys will quote a fee without sufficient consideration of all factors contributing to the time expenditure and costs for a case. Perhaps the “going rate” for a legal service is generally known and the lawyer feels that if he charges more he won’t be retained. Or the attorney is overly optimistic about the time involved in handling the case or does not factor in unforeseen costs and additional time requirements.  The fee may be fixed but the time required is not. Have you ever been in court on a simple uncontested matter and been one of the last on the docket? What did sitting in the court room cost you? Was the case still profitable?

If you handle fixed fee cases, review your fees vs. costs and time expenditures. I often work with clients who complain about working too hard yet not making enough money. If the client handles fixed fee cases, I request that they keep accurate records of exactly how much time they spend on each case and document all direct and indirect costs. In many cases the amount of time expended is in excess of the estimated time involved in quoting the legal fee.

Here is an example:

  • A probate attorney charges $250 per hour.
  • He quotes $2500 for probating an estate.
  • The time expended ends up being 15 hours.
  • The attorney was not working for $250 per hour. His effective billing rate was $166 per hour.

Ouch! If his business plan requires more than $166 per hour to make a profit, he lost money on the case. If he does this long enough and on enough files his practice will fail.

Take Away Points:

  • Don’t charge what everyone else is charging for a fixed fee legal service. Unless it is a loss leader, charge what you need to make a profit.
  • Carefully analyze the amount of time you spend, on average, on this type of case and set your fee accordingly.
  • Build in a cushion of fee to cover unexpected time expenditures and costs.

You’re better off going to the beach than working hard, exposing yourself to professional liability and losing money to boot. Pay attention to those fixed fee cases. Be smart, make them pay off for you.

Have a Great Practice!

Daniel Roberts

Professional Lawyer Coach

coachingforlawyers.com

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