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From Practice to Business: Flat-Fee Relationship Engagements for Transactional Lawyers

By Kevin E. Houchin

Getting beyond the hourly billing trap requires admitting there's a better way-and then acting to implement it.

It’s no secret that hourly billing is a trap. The only way hourly based lawyers can improve their situation is to either bill more hours or raise fees. That’s it. Two options. How limiting is that? But that’s the “practice” model inherent in the industry. It’s just the way it is, right?

Wrong.

That’s the load of B.S. we were fed in law school by professors who really hadn’t made a good enough living in practice. Professors generally don’t know any better, but it’s not really their fault because they were fed the same line of B.S., too. So were the principals in most law firms. It seems like everyone in the legal industry has a vested interest in charging by the hour, and charging big money per hour. So are you worth $350 per hour?

No.

Many times you’re worth way more than that. You’re selling yourself short.

Do you want to provide better service and more value to your clients? Do you want to spend more time with your family? Do you want to make more money? Do you want to be able to plan your income for the next year without laughing inside because you know you’re just pulling numbers out of the air? Of course you do.

So how do you get beyond the hourly billing trap? First, you admit that there has to be a better way. Second, you have to get past some fear. Third, you have to act.

Truth be told, there are infinite alternatives to hourly billing, and we’re all smart enough to figure them out. I’ll share one that has worked for me.

Shifting to Flat Monthly Fees

In May 2009 I was feeling pretty low. I was exactly a year out from having filed a personal bankruptcy (thanks to letting my ego get way out in front of my wallet), and I wasn’t making any progress toward financial success. My solo practice focused on the needs of start-ups and other creative businesses: formation, contracts, copyright, trademark and other transactional work. I didn’t know where next month’s rent would come from. I still couldn’t justify hiring even clerical help because I didn’t want to have to lay someone off. I was scared.

One thing I knew, though, was that the definition of insanity is doing the same thing over and over and hoping for different results. At the encouragement of a friend, I decided to make a major change. I took hourly billing off the table for all new clients.

Here’s how it works:

• Clients could pay me what the project was worth, or;
• They could engage me for 12 months at a flat monthly fee ranging from $250 up to $3,000 per month based on the amount of work we could predict over the next year.

For those choosing the flat monthly fee, here are key steps in the process:

• The outlined work is included in the fee, which is basically financing the legal work for the client.
• The client receives “as needed” access to me for quick questions via e-mail, by phone or in person. (Never say “unlimited”—but more on that later.)
• The monthly fee is auto-billed to a credit card so I don’t have to spend time sending invoices or hoping to collect.
• Litigation and out-of-pocket fees are excluded from the plan.
• I collect the first and last month fees up front, with the last month fee sitting in my trust account.
• The clients sign a written engagement agreement stating that they understand that the value of this agreement is front-end-loaded so the firm has the option to charge a three-month termination fee if the client terminates before the end of the 12-month engagement agreement.

I signed six new clients to the program in the first two weeks. This changed my life. After two weeks I could plan. I had contractual agreements that paid my office rent for the next year.

Now you’re asking the two fear-based questions:

• How do you keep clients from calling you all the time?
• How do you set the monthly fee?

Get past your fear. First, my small business start-up clients are too busy to make up work for me or call me all the time. They have better things to do. You can also set the expectation right up front by using the phrase “as needed” rather than “unlimited” in your conversation and written agreement. People can see that they’re getting a great opportunity; they don’t want to get fired.

To set your monthly fee, just figure out what the client will need over the first year, add some pad for the “as needed” time, and divide the total by 12. The monthly fee should be significantly less than the fee the clients would pay you for the initial project they have on the table at the moment.

For example, a mom-and-pop start-up will pay around $1,250 for an LLC start-up in my area. So clients look at my $250 per-month plan as a great option, especially considering that we’ll handle their core set of agreements, maybe a trademark, and throw in the as-needed counsel. A no-brainer for them. And, for me, I’ve moved a $1,250 client into a $3,000 per-year commitment. Sure, I’ll be doing more work, but isn’t “doing more work” what we’re hoping for each time we engage a new client?

Of course it is.

Nobody has taken undue advantage of the as-needed advice. Plus, my client-referral rate is way up.

Clients actually value the advice instead of the documents. I’m not in the commodity business anymore. It used to be that people paid for the documents and got the advice for free. Now clients pay for the advice and get the documents for free, which is really how it should be.

The biggest benefit is that now I’m running a business instead of a practice. I’m not evaluating each hour, day or client as profitable or unprofitable. I’m looking at monthly numbers and saying “is there more money coming in than going out?”

There is. That makes all the difference. Now I can take time off. Now I don’t rush to get clients off the phone when they call with a quick question. I’ve hired help. My life is better because I escaped the hourly billing trap.

Yours can be better, too.

About the Author

Kevin E. Houchin is a lawyer, author, leadership coach and distinguished creative spirit. In his law practice, Houchin & Associates P.C., he advises creative people on how to maximize creativity, build businesses and protect intellectual property. His latest venture is The Space Between Center for Creative Spirit in Business, a unique lawyer membership program designed to equip, inspire and position lawyers and other entrepreneurs to attract and serve their ideal clients in the information age.