Starting Out Fresh: Hourly billing or flat-fee?

October 3, 2012

Solo Practitioner(Editor’s note: “Starting Out Fresh” is a five-part series on common questions tackled by new solo and small practitioners that will appear weekly on WestlawInsider throughout the month of October.)

When first starting out my solo practice, one of the more difficult questions that I was faced with was billing.

By “billing,” I mean the following:

  1. How much to charge,
  2. Whether I should charge traditional hourly rates or flat fees, and
  3. What things I can and should charge for as an attorney.

I’ve covered the first topic in an earlier post, but the other two haven’t seen the same attention – at least, until now.

This week, I’ll be tackling the “hourly versus flat-fee” question.

So, should you charge hourly rates or flat fees in your solo or small law practice?

Well, it depends.

Charging hourly is the most common practice in many fields – including family law, civil defense, and business law.

Although flat fee rates, conversely, have historically been limited to particular fields, such as criminal defense, there has been a recent trend to expand the fee structure’s application.

For example, the flat fee structure has been applied to family law billing with an à la carte approach.

This process does not mean charging a flat fee for, say, an entire divorce, but instead charging per individual step in the divorce process.

For instance, a flat fee would be charged for the initial divorce petition (and all associated filings), but then an additional flat fee would be required for any further action by the attorney on the matter.

There are several advantages and disadvantages to flat fee billing such as this.

As far as advantages, this billing scheme allows clients to know exactly how high their costs are going to be upfront, and how far a certain dollar amount will take them with an attorney.

For the attorney, flat fee billing also creates fewer fee disputes with clients since (as mentioned above) they know exactly how much they are going to pay ahead of time.

In addition, (if done correctly) flat fee arrangements can limit an attorney’s commitment to a case by ensuring a much smoother exit from a matter than having to formally withdraw, which sometimes requires the court’s permission.

Are there any disadvantages?

In my opinion, there is one aspect of flat-fee billing that creates a major possible disadvantage for attorneys and clients alike.

That aspect is that flat-fee rates are typically based on an hourly rate averaged cost of a specific task.

If a matter is much simpler than the average case, the client pays more than he or she would under an hourly billing system.

If the matter is more complex than the average case, then the attorney would receive less for his or her time than under an hourly billing system.

Many attorneys maintain (perhaps correctly) that it all balances out in the end.

However, I’m simply not comfortable with that level of imprecision, so I’ve generally stuck with hourly billing.

Nevertheless, flat-fee billing offers some undeniable benefits, so I wouldn’t write off the practice entirely.

What I’ve done is implemented flat-fee billing schemes in limited circumstances – typically those involving very little risk of surprises (i.e., not family law).

In what situations do I employ flat-fee billing?

For simple estate-planning document drafting – such as wills, trusts, health care directives, and powers of attorney.

Of course, you should use whichever billing plan works better for your practice – but remain nonetheless vigilant of the potential pitfalls of alternative billing arrangements.