If your goal is to build a law firm that allows you to work part-time while earning a full-time income, your income cannot be based on your time. Instead, it must be based on the value you deliver to clients.
One of the best alternative fee arrangements that allows you to bill clients based on value rather than time is a flat-rate fee.
In this article, we will discuss the benefits of flat-rate fees, when they work, when they don’t work, and how to set flat-rate fees for your legal services.
Flat-rate fees work best when the process or lifecycle of a matter and the work involved are highly predictable. Examples include estate planning, copyright, trademarks, contract review, DUI defense, bankruptcy, and business entity formation.
While the time involved in these types of matters may vary from case to case, there is usually a predictable average.
By setting a flat-rate fee that builds in margin for matters that may require a bit more time than average, and maximizing your efficiency through technology, systems of automation, and an assistant, you can bring home a full-time income while only working part-time hours.
Whenever the lifecycle of or the work involved in a matter depend on the actions of other individuals, like a case involving litigation, discovery, settlement negotiations, contract negotiations, etc., a flat-rate fee will more often than not work out to an uncomfortably low hourly rate.
For these types of matter, it is best to charge hourly. You can even begin with a flat-rate fee for a clearly defined scope of work and bill hourly for any additional work outside the scope of the initial package.
First, do NOT try to make your competitive edge being the cheapest option on the market. That is a race to the bottom and a race to burnout. It certainly will not facilitate the lifestyle law firm you are creating around your other priorities in life.
Instead, let your flat-rate fee be based partly on the market in your area, but also on the value you provide, a generous estimation of the time it will take you to complete the matter, and your expenses.
Working backwards from your desired monthly income might not be the best way to come up with your initial figure, but determining your desired monthly income will be necessary to assess how many clients per month you would need to achieve your income goals and whether your flat-rate fee makes your work schedule goals realistic.
For example, let’s say that your monthly income goal is $14,000 and you’ll have $1,000 in expenses. You need to earn a total of $15,000 a month.
Perhaps your practice area is estate planning and you offer a will package and a trust package. In your area, a will package averages between $1,200 – $1,700. A trust package averages between $2,000 – $2,700.
If you charge $1,500 for a will package and $2,500 for a trust package, you can reach your gross income goal of $15,000 with 5 will packages and 3 trust packages.
That’s 8 clients a month. Let’s say each matter takes you around 3-4 hours. That’s 24 to 32 hours of work spent on client engagements per month (of course you’ll have work time devoted to consultations, marketing, and the business end of things, too) to reach a net profit of $14,000 after expenses. Multiply that by 12 months and you’re earning $168,000 annually while working part-time around the things that matter most to you in life.
You simply raise your fees and/or increase your efficiency. Let’s take the numbers in the example above. Suppose you were charging $1,700 for a will package and $2,700 for a trust package. Working the same amount of hours, you’d now be making $187,000. Even if your expenses increased by $1,000 to hire a part-time virtual assistant or increase your assistant’s hours, you’d still be making $175,000.
Are you interested in utilizing flat-rate fees in your firm? Grab our free flat-rate fee planning worksheet here!
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