Alternative Billing Models for Law Firm Innovation

For decades, the billable-hours formula has been the standard for charging clients in the legal field. But in recent years, the industry has grown increasingly competitive. Thanks to recent law firm technology trends, customers have more options than ever before, and they're becoming more cost-conscious. As a result, many firms give customers more flexibility to provide the best client experience.

Alternative billing models offer several benefits. For example, they can foster trust. No client likes to open a statement that includes more hours than they expected. By offering set fee structures, you take away the chance of a miscommunication over billing and your client won't worry about the ticking clock.

Law firm billing models

More firms than ever are stressing the importance of billing and data retention as integral to their overarching business strategy. A recent report shows that between 2017 and 2022, 78% of law firms surveyed added pricing specialists, and 95% invested in data scientists. Through 2024, these roles are expected to increase by 70% for pricing specialists and 52% for billing and collections professionals.

Flexible pricing encourages long-term relationships with clients. Alternative billing models can attract more clients to your firm who can't afford an hourly rate. These are four of the most common alternative models for law firms.

1 Flat fee

A flat-fee pricing model offers a set charge for certain types of legal services. If your firm takes DUI cases, handles bankruptcies or draws up wills, this could be an attractive way to bill. Clients appreciate knowing the full cost of the service up front. And if you're experienced and efficient with these types of cases, the rate you earn per hour will likely be as much, if not more, than a billable-hours model.

Another way to incorporate the flat-fee model is to use it for a portion of a long-term project or extended litigation. You can charge one rate for the filings, another for the discovery period and another for the trial. This provides flexibility for you and your client as you move forward with a pending matter.

2 Capped fee

Offering a capped fee is a hybrid of the billable-hours and flat-fee systems. The client pays by the hour, but the number of hours is set in advance. This provides clients with a ceiling on their total bill and peace of mind that the service fits their budget. If the number of hours you work reaches the cap and additional work is required, the law firm absorbs the cost.

Like a flat fee, the capped-fee structure is for projects expected to take a typical number of hours. It can also be a good structure for a client who wants to have a law firm on a monthly retainer. Each month, the client and firm can reevaluate the capped hours.

3 Unbundled fee

An unbundled fee structure is when a lawyer offers a set cost to perform a specific task, process or issue instead of handling the entire legal matter. Firms offer a menu of services, each with its own price. This puts the client in control in case they want to do some of the work themselves.

Offering an unbundled pricing model opens your firm up to new clients who may be comfortable handling parts of the work and only need help with certain tasks. For example, a divorce attorney may offer this arrangement if the client has reached an amicable settlement and only needs the paperwork drafted.

4 Contingency pricing

This structure appeals to clients because they only pay the firm if they win their case. Contingency fees are most common with personal injury, insurance and medical malpractice cases. If the case is won or a settlement is reached, the firm charges a percentage of the recovery.

Attorneys need to be selective about the cases they take for a contingency fee. The percentage could vary depending on the type of litigation and the possible outcome.

Law firm billing best practices

Setting your law firm's clients up for success is critical to gaining a solid reputation and paving the road to sustained profitability. There are several billing best practices to consider when setting up a payment plan.

• Use secure technology and invoicing software.
• Build trust through clear and transparent fee terms.
• Provide detailed invoices with time tracking.
• Ensure consistent billing cycles.
• Discuss alternative fee arrangements up front.
• Provide estimates and budgeting services.
• Enable dispute resolution procedures for your firm.

Finding a fit for your firm

The best solution for law firm innovation could be to offer a variety of fee structures based on the clients you want to attract and their needs. The key to a successful practice is to offer great value. Alternative billing should be based on what's fair and reasonable for you and your clients.