Alternative Fee Arrangements for Transactional Cases
For years, lawyers have billed hourly for business transactions. And for the most part, business clients accepted the system – even if they didn’t always like it. But over the past several years, large transactional clients have begun to take a hard look at the money they spend on outside law firms. Many have pushed for alternative fee arrangements that give them more control over the ultimate cost of a matter.
Larger firms have started adopting alternative fee arrangements as a way to survive economically. Small firms can also set themselves apart and increase client satisfaction by crafting fee arrangements that allow clients to budget for legal fees. Here are some of the alternative fee plans that transactional lawyers are embracing.
Fixed fees: A fixed fee is a flat rate for a particular service. Fixed fees work well when a matter is routine and the lawyer can predict how much time it will require. Business formation and simple contract drafting are examples of the types of matters that transactional lawyers might handle on a fixed fee basis.
Success fees: A success fee gives a law firm a stake in the ultimate outcome of the transaction. The firm receives part of its fee up front, or in monthly installments. The client reserves the remainder of the fee, and the client then pays an agreed-upon multiple of that fee if the law firm achieves a positive result, such as completing a transaction.
Fixed Fee Plus Hourly: When the representation has too many unpredictable elements for a fixed fee, a hybrid of a fixed fee plus an hourly rate may be appropriate. The firm might charge a fixed fee for drafting an agreement, but charge an hourly rate for additional negotiations.
Unbundling: Traditionally, a law firm provides full representation, including negotiating a deal, performing any necessary due diligence and documenting it through contracts and other documents. But a budget-conscious client may only want part of this “bundle” of legal services. For example, the client may want advice on negotiating strategy and contract drafting services, but may choose to negotiate the transaction and conduct due diligence himself. Offering unbundled services helps lawyers be sensitive to the needs of these types of clients.
Bundled services and Subscription plans: Some business lawyers offer startup clients a package of services that might include business formation, a basic business contract and a certain amount of consultation time. Or they sell subscriptions that give ongoing clients a certain amount of access to legal advice each month or year, so clients are not hesitant to pick up the phone and call a lawyer when they have a question. These sorts of innovative solutions encourage clients to be proactive about legal issues and help lawyers maintain connections with their clients.
Offering alternatives to hourly fees can help you stay competitive and serve your clients better. Before you start offering alternative fees, it’s a good idea to closely track the amount of time you spend on each type of matter you handle. Once you understand the time required, you’ll be in a better position to set an alternative fee that makes economic sense for your firm.