Welcome to episode four of The Josh Gerben Show. This is the show where we talk about the business of being a lawyer, the business of our profession. If you’ve checked out the first couple episodes, you already know that I’m a big believer that lawyers are not thinking about all the business items that come with practicing law on a day-to-day basis. We miss out on opportunities for growth and more fulfilling practices by just focusing on practicing law, and not focusing on practicing business.
So, in today’s episode, I want to talk about something that has really helped my law firm grow over the years. That is the use of flat fees. Most lawyers hear flat fees and they go, “Oh no, the billable hour is dead. How am I ever going to make money again? I was doing so well with the billable hour. With these flat rates, it’s so difficult to make money.” I think if you’re using flat rates properly you should be making two to three times your billable rate because you’re billing for your value and you’re no longer having to bill for your time.
Let me say it again, because I think it’s just so important. If you’re using flat rates properly, you should be making two to three times your hourly rate when you’re properly implementing a flat rate program at your firm. Flat fees, to me, are a great thing for attorneys. They let us charge for the value of what we’re providing, as opposed to just for our time. If you’re charging for the value of what you’re providing, and you’re a very good attorney at what you do, you’re probably worth at least two to three times your hourly rate. Now you can actually collect that fee.
On the other side, it’s a great deal for clients, because now they’re paying for the value of the services rather than just some random amount of time that it takes you to get their work done. Clients love it because they can come in and say, “Okay, this is going to cost $1,000, $2,000, $3,000 and I know exactly what I’m getting for that money. And I don’t have to worry about how long the lawyer is taking to think about it, how long it takes the lawyer to sit there and draft an agreement or draft a letter. This is the value of what I’m paying for.”
When we’re talking about flat fees, I’m not saying you should just throw out the billable hour and forget it. I think the billable hour has its place. There are certain things that are very difficult for offering flat fees on. But, there are a lot of places in your practice you could probably implement flat fees. My challenge to you, today, is to start thinking about it.
How Can Flat Fees Be Used in Legal Industry?
There’s two different categories that we can lump legal services into. One is services that do not have an adverse third party. They’re not litigation. Then, the other is litigation, enforcement, or any kind of adverse third party situation.
Services Without an Adverse Third Party
The first category is a lot easier to develop a flat fee program for. If you have a practice where you have things that you’re doing for clients that do not require having an adverse third party involved, this is a great, great place to start trying to figure out a flat fee program.
Obvious places would be wills, trusts, estates, trademarks, copyrights, and patents. I’m thinking employment agreements, employment manuals, privacy policies, and terms and conditions. There are all sorts of things that your clients may need that you can just develop a flat rate around. I would highly encourage you to jot down a few things that you might be able to develop a flat fee for. This is a crawl, walk, run process. If you have never experimented with flat fees before, you’re not just going to jump in and make everything you do a flat rate. You’re going to have to find one thing and say, “You know what? I’m going to start offering this as a flat rate.”
Then as you’re talking to your clients, you can suggest trying your new service packages. Once you start there, now you can start developing more and more things. As you develop the flat fee program and start getting it all situated, you’ll want to do more and more of it because you’ll be making really good money, as long as you’re charging appropriately.
Services With an Adverse Third Party
Now, the other place you could consider flat rates is when there is an adverse third party. Any kind of litigation is very difficult to do flat fees for, because you have this unknown as to how far the case is going to go. But, I think you could offer flat rates for the initial phases because, the majority of time, litigation settles. If you filed a lawsuit, or you send a cease and desist letter, you may start the process of negotiations for settlement. You can develop flat rates around needing to send that letter, needing to file that lawsuit, needing to start settlement discussions. You don’t have to include the whole litigation. Make sure your client knows you can charge a flat fee for the initial phases but allow them to evaluate moving beyond that point if there is any additional work needed in the future. Often, it’s going to be very helpful for a client to get a case started or to at least start working on a matter.
What to Consider When Developing a Flat Rate Program for Legal Services
Now that we’ve talked about where we can find flat rates, let’s talk a little bit about the execution of them. I think there’s some very critical things to get right if your flat fees are going to work. So there’s four main areas that I think you need to think about when developing a flat rate program.
- The second thing you want to think about when you’re charging flat rates is you want to have good systems in place. This goes along with the first point of needing to be efficient. But, for example, in my firm, when we offer a flat rate, there can be four or five people that touch a particular matter. If we’re not efficient in how we’re sharing information and how we’re moving the matter from person to person through the firm, we’re going to lose money. If you are going to be a solo practitioner, or just do the work yourself, you should think about systems that can make you more efficient. Emails that are set up to clients that you’re going to use throughout the process might be templated, or you may have different checklists that you use to move things quickly. But, if you’re going to include other people like attorneys or paralegals in the process, there needs to be a systemization toward what you’re doing. Our goal as attorneys now is to keep our time down, which is kind of the opposite of what we’re used to doing. That is something that I think a lot of attorneys need to start thinking about differently because no, it’s about how quickly can you move through something and still do a really good job for the client.
- The third rule that you need to think about when you’re starting your flat rate programs is charging enough. This is particularly difficult to do because a lot of attorneys have no clue what to charge once they start billing for value instead of time. Most attorneys I know will say, “Well, this will take me about three hours. My hourly rate is $400 an hour. So, I’m going to charge $1,200.” And that is the exact wrong way to think about it. If all you’re doing is essentially billing hours when you’re offering flat fee services, you’ve got this all backwards.We’re trying to make two to three times your hourly rate when you’re doing a flat rate program, because you are so efficient and so good at what you’re doing that that’s the value. So, when you’re setting the price for your flat rate service, you should probably use the initial calculation, “What is my hourly rate? How many hours do I think it’s going to take me,” and double it. See where you are. See if it sells because the marketplace is ultimately going to tell you how well you’re priced.My flat rates have changed numerous times over the 11 years we’ve been in practice. I started out at a rather low rate because I was a new attorney and new to what I was doing. Now, like I just mentioned, we’ve got so much time and expertise on trademark matters that if you’re going to come to our firm, you’re coming to us because you value our expertise and experience. And we’re going to charge for that. Now, I’m still a lot less expensive than most standard major law firms because we have such efficiency in our process and we’re so good at what we do. Our fees that we charge to do that are very reasonable. That’s where you get into a winning situation.However, if you’re not going to charge enough for your flat rates, you may as well stay billing at the hourly rate. The goal with a flat rate program is to be a value biller. Remember that, value billing. It’s so, so important. When you’re coming up with your flat rate price, you may have to experiment a little bit. You may start somewhere and see what the reception is amongst your clients, and if it’s not great, maybe you adjust it back. If you have a lot of interest and a lot of people are signing up, you probably need to raise the cost from there. Always be evaluating the price and always be evaluating how much time you’re spending to deliver the ultimate product. If you are spending too much time, you need to raise the price. If you’re spending very little time and you’re getting a great result, now it’s time to figure out the next thing you can charge a flat rate for.
- The fourth and final tip I have about flat fees is that you need to set limits in the engagement form. This is incredibly critical because most attorneys will tell you that if they’ve charged a flat rate and lost money, it’s because the client kept them on the phone two hours every time they called or because the matter spiraled out of control. There was all this back and forth and it just took them forever, and nothing ever closed. It went on for two years and it was a huge loss. To prevent that, the flat rate needs to have boundaries.In our practice, we tell clients with our flat rate for a single trademark filing, we typically offer a half hour phone consultation. This way, if we do a consultation and the client just goes on for 30 minutes, once that call is over I may send an email that says, “Just so you know, we’ve hit the 30-minute maximum on our consultation time. However, I’m still going to give you another call if you have other questions. But once we get beyond that, we would start to get outside the flat rate.” I’m delivering a client service, but I’m also making the limits clear. The great thing about that is that most of our clients really respect that. They’ll say, “Oh, you’re right. Okay, no problem.” And then the communication gets a lot more efficient, right? So instead of someone wanting to yammer on the phone all day long, they realize that you’re still accounting for your time and they still have to respect your time. They’re going to have to pay for it if they don’t.Another example of a limit would be, “Hey, if this matter doesn’t close in six months, we’re going to have to reevaluate where we are on fees because we can, for this fee, take it and negotiate it for six months. But, if it doesn’t close, then we’re going to be outside that flat rate.” Again, you’re still providing great value to the client because you’re giving the client parameters as to what you’re charging for. They understand the value of what you’re providing and the time constraints in which you need to provide it to deliver that cost. So, this is really important to make sure it’s in the engagement agreement and also discuss with the client. You don’t just slide these terms in. You need to go to the client as you’re engaging and say, “Here is the parameters of how you should think about this flat rate. Here are the limitations of the flat rate and why. I’ll always let you know before we get there, so there’s no surprises.” You want to make sure you’re being very upfront with the client, especially as the process is moving forward. Set those limitations and make sure you’re constantly reminding the client of where they are so that if you get there, you don’t end up in a place where you’re starting to lose money.
Three Tips for Implementing Flat Fees Into Your Law Practice
I’m going to leave you with three quick hitters. These are things that I’ve learned over the years in my practice, where we charge a lot of flat fees.
- The first is to expect a trial and error period. You’re not going to get this right the first time you start charging a flat rate for service. There’s going to be leaks in the ship that spring and you’re just going to have to deal with them. Remember, it’s trial and error. Do not get dissuaded. You should be value billing in today’s world, and you should be making a lot more money by value billing than by billing by the hour.
- The final point is that you need to consider is taking the fees in up front. I think that there’s always a huge problem in chasing fees as lawyers. Once we do something, it’s a bit of intangible thing. The client gets the work done and now you’ve got to chase them for the fee. That is just bad business. If you’re charging a flat rate it enables you to collect it up front, or I would suggest at least two-thirds up front. In my firm, we collect most of the flat rates we charge completely upfront. For the work that we don’t charge upfront on, that’s the only work I never get paid on. It happens. I strongly suggest collecting as much as you can up front and explain to the client why you do.My explanation, which is completely genuine, is that we do not have the office staff to chase down people for payment. If we had to hire those people, our fees would be higher. So, by keeping our administrative burden low and getting it all out of the way at one time, in the beginning, we keep our rates extremely competitive compared to other law firms with similar expertise. I think if you position it like that, your clients will truly understand. If you feel that, for whatever reason, you can’t charge the full flat fee up front, I think at least getting two-thirds is absolutely critical.
Thank you so much for joining us for today’s show. I hope you enjoyed the discussion here about flat rates. If you did, please subscribe to the YouTube channel or subscribe to the podcast. Leave a comment, leave a rating. I love getting feedback so that I can try to put the show in a place where everybody’s getting value. And, of course, if you know of anybody that would like the show, please pass it along. We’re trying to get the word out. Thank you again so much and I’ll see you at the next show.