When it comes to legal fees, most attorneys figure out a way to charge clients when they start their practice. More often than not, they establish a fee structure, usually billable hours, based on what every other practice does.
Aside from the occasional increase, they don’t think about it. They set it and forget it.
It’s time to turn off the cruise control.
If there’s one thing that’s important to your profitability, it’s having a clear understanding of the drivers of your profitability.
One of the biggest drivers is your fee structure. Not just the amount, but the “how.”
Flat Fees Lead to More Revenue
Most law practices stick with what they feel is tried and true – the billable hour. But for almost every practice, flat fees can significantly outperform hourly billing if you know how to do it right.
When my firm made the switch from billable hours to subscription billing, we increased what we charged by changing three things – the fee structure, whom we sold to, and how we sold it.
We increased revenue every year.
I started at $250 per hour. After a few years, the firm had increased our fees by more than six times to an effective rate of $1,616 per hour. And that was more than 10 years ago.
But here's the thing. It wasn't billed "by the hour". We offered a solution.
The First Step: Challenge Your Assumptions
The first assumption is that clients won’t pay more. That’s just not true.
Clients will pay more if you present the right offer to the right prospect. If they don’t accept, it either means you haven’t nailed the offer or you’ve got the wrong prospect.
The second assumption is that the prevailing fee model for your practice area, which everyone else is using, is what you should be using.
Just because someone else is doing it doesn’t make it right. In fact, it’s just the opposite.
There’s a reason why Apple chose to “think different.”
If you look at any industry, the leaders in profitability are doing something radically different. Their combination of position, pricing and delivery is completely unique.
That leads us to the third assumption, which says you have to deliver your services the same way you’ve always done it. The key to profitability is to deliver services with a different combination of people and process.
Do those three assumptions seem a little abstract? If so, it’s probably because you’re stuck in the old, billable-hour mentality of trading time for money.
But it’s absolutely worth your time to think about this. The key to creating equity in your practice and getting out of the rut of trading time for money is to create a fee model that separates effort from profit.
Ready to Become More Profitable?
Shifting your fee structure from billable hours to flat fees isn’t easy. But I can tell you, based on my own experiences and the experiences of our members, the rewards are there.
If you're ready to learn more about making the shift to flat fees, contact our Practice Growth team here.