How to Use Flat Fee Arrangements to Promote a Winning (and Profitable) Practice [Updated]

Lawyer with Flat Fee
Flat fee arrangements are amazingly liberating.

Most of my fellow litigators won’t take a case on a flat fee, either because they are concerned that they will grossly underestimate the time the case is going to take and end up with an effective hourly rate of $8.25, or simply because they think they’ll make more on a straight hourly basis.

I acknowledge that some cases just do not lend themselves to a flat fee because of the unknown factors, but when you have a case with a reasonably predictable time factor, a flat fee is a fantastic way to go, not because it earns you more (although it can), but because it allows you to do more.

This may be counterintuitive to some, and probably blasphemous to attorneys that are only in it for the money, but I’m in it to win it, and a flat fee gives me greater freedom to do what I need to do to win.

Say you have a case that is crying out for a demurrer. On a straight hourly arrangement, your discussion with the client goes something like this:

You:  “I really think we should bring a demurrer. The third cause of action for breach of contract fails to allege performance, and here they really can’t honestly allege performance, so I think that will get rid of that cause of action.”

Client:  “So if you bring this motion the case is over?”

You:  “No, it will just get rid of that one cause of action if we prevail.”

Client:  “How much will the motion cost?”

You:  “With the motion, the reply and going to court, I can probably do it all in ten hours, so $4,500.”

Client: “So I pay you $4,500 and the motion may not work and even if it does it doesn’t end the action it just gets rid of one cause of action?”

And what the client is thinking is: “Damn attorneys, he’s just trying to run up the bill.”

With a flat fee, all those conversations are eliminated. If I think a demurrer is needed, I bring it. If I think more discovery is needed, I propound it.

And this isn’t pure altruism. Yes, I do this to win, but being free to do everything I want to do on a case may allow me to prevail on the action much more quickly, making the flat fee a winning bet for me financially.

A few tips for flat fees:

Educate the client as to the fantastic deal you are offering, because other attorneys lie. Less scrupulous attorneys snare clients with a small retainer, never disclosing what the case could ultimately cost. So, one attorney is offering to handle the case with a retainer of $5,000, and there you are quoting a flat fee of, say, $25,000, not including trial. You need to make the client understand that a small retainer is a false economy if the fees ultimately go far beyond the flat fee you are offering.

In one case I quoted an amazing flat fee for a client because he had limited funds and I really wanted the case because it presented a cutting-edge legal issue that would give me bragging rights if I won. When I didn’t hear back from him, I called to see what was going on. Turns out he had shopped my offer around, and another attorney had expressed shock and outrage that I would quote such a high number, telling the client the case would never cost near that amount. Three months later the client was back at my door, asking if I would still handle the case for the amount I had quoted. The attorney he retained had already billed him more than the flat fee I had quoted.

I think I’ve told this tale elsewhere on this site, but in another case, a client came to me on a Friday and, fearful that the defendant was going to leave the country with all his money, wanted me to seek an attachment order the following Monday. I quoted him a flat fee, which he paid, and informed him that I would have to work on the court papers all weekend to get it done. On Monday he called and told me not to do any of the requested work (which was all done at that point), because another attorney had told him that the procedure I was following was completely unnecessary. The other attorney told the client that with a call to the judge, he could just have the defendant put in jail until he paid the money owed. The client was upset that I had not advised him of this option. To me, the incredible part of the story is that when the client later called back wanting to hire me, because the “put the defendant in jail” attorney had not been able to accomplish that goal, the attorney had convinced him that the described method would normally work, but it appeared that the judge happened to be friends with the defendant. Never underestimate the whoppers that your learned brethren will tell.

Always offer an hourly and flat fee arrangement. To counter the above problem, your fee agreement should always offer both a flat fee andFlat Fee Attorney Services hourly arrangement. The client may have reason to believe that the matter is going to settle quickly, and therefore thinks a flat fee would be a waste. Be sure to include language that the flat fee is not an indication or estimation of what you think the case will cost on an hourly basis.

Explain that the flat fee is less than what you estimate the hourly fees to be. You have to be very careful how you word your agreement, because there are a couple of ways it can bite you in the butt. I will typically include something like this:

If this action proceeds with no challenges to the complaint, the typical amount of discovery, and no other unanticipated motions, then I estimate the total fees on an hourly basis will be $75,000 up to two months before trial. This is only an estimate, and is not an agreement to cap the fees at that amount.

Alternatively, some clients prefer to know exactly how much the litigation is going to cost. I am prepared to handle your matter for a flat fee of $65,000, not including costs. Since I am assuming the risk that the matter could be far more time intensive than anticipated, you must assume the risk that it could be less time intensive than anticipated. The flat fee will be deemed earned upon receipt, and there will be no refund.

My actual agreement is far more detailed, but you get the idea. Also make sure it is crystal clear that if the client elects to proceed on an hourly basis, the flat fee is off the table. Inevitably, when the hourly fees pass the flat fee you quoted, the client will seek a modification.

Make clear that you get to drive the bus. The agreement must provide that under the flat fee arrangement you have discretion to decide what is necessary to prosecute or defend the action, and that any requests by the client that you deem to be unnecessary will be billed on an hourly basis. Without this provision, the client will decide that since it is not costing him anything, you should take the deposition of everyone living in Malibu, just in case they know anything.

Break the flat fee into parts. Some attorneys who offer flat fees hedge their bets by quoting a flat fee that covers all the way through trial, knowing that most cases don’t go to trial. Not only is that unfair to the client, in my opinion, but it also results in sticker shock to the client and allows them to fall prey to those aforesaid lying attorneys. At a minimum break the flat fee into two parts — one for pre-trial and another if the case goes to trial. However, a flat fee for a trial can put you in an awkward position if, for example, defendant has a change of heart and stipulates to judgment. (I had that happen twice in back-to-back cases. I guess I’m just scary looking or something.) My fee agreement provides that the flat fee for trial is payable in advance, but will be treated as a cap, not earned upon receipt. I keep track of my hours, and if I pull off a quick victory, the client gets the flat fee back, less my regular hourly rate.

Liberate yourself! Go for the flat fee.

Choosing your office spaceIf you’re proceeding through my Starting Your Own Law Firm series, click on the big blue NEXT button to proceed to the next article. If you are following the series, you’ve found killer office space at a killer price, furnished it beautifully, and learned how to convert nearly 100% of callers to clients (at least the ones you want to be clients). Now you need to service all those clients, as efficiently as possible. One simple step for a quantum leap in document creation efficiency is to stop using a keyboard and instead use speech-to-text dictation. 

Start Button Law Firm MarketingIf you came to through this article, and want to get the full benefit of the site, then please click on the START button to begin at the beginning. I’ll show you step-by-step how to launch your first niche site. I’ll show you how just one static niche site can bring in over $100k per year. Get a few of those up and running, and you have yourself a thriving practice. If you already have a website where you are utilizing content marketing (or want to try something different), then here are some more articles on how to market your law firm.

Leave a Reply

Your email address will not be published. Required fields are marked *