Over the last several years, lawyers and their clients have become increasingly dissatisfied with the traditional "hourly fee for services" model. More and more firms are implementing different versions of Alternative Fee Arrangements ("AFAs")*.
In some situations, the hourly fee model is the only arrangement that makes sense. For example, in a complex commercial litigation matter where the scope of the representation is highly uncertain - much depends on actions taken by opposing parties (discovery, motions, etc), as well as unpredictable witnesses, judges, juries, etc. - it is virtually impossible to fix a fee that makes sense for either the client of the law firm.
In other situations, however, keeping track of time might be a lawyer's measure of cost/overhead, but it's not necessarily a good measure of the value he or she is providing to clients for their legal needs. (It has been said that, when you pay your lawyers for the time it takes them to do something, you get what you pay for - hours! In the meantime, you discourage innovation and efficiency and you incentivize complexity and redundancy.
Almquist Law is dedicated to innovation and efficiency. We abhor complexity and redundancy, and we strive for client satisfaction - which we believe is essential for creating long term and profitable relationships.
It's our belief that two things can be singled out as the main factors that can help increase client satisfaction with our service:
- Predictability in legal costs which helps clients create more accurate budgets and lets them plan for costs in advance
- Reduction in misunderstandings and disputes over legal fees and costs
An AFA that incorporates agreed-upon pricing benefits our clients in several ways:
- Certainty – The client knows the cost upfront
- Simplicity – Pre-agreed pricing means no more sorting through complex itemized accounts or invoices
- Clarity – The client has a better understanding of what we are going to do for them, and what the process and timing will be
Considering that our focus is on business and real estate law, we believe there is considerable merit to offering our clients what is known as a Subscription Services Model ("SSM").
Hourly billing often creates a unpleasant experience for clients because it’s almost totally unpredictable. You open up your invoice at the end of the month, without having a clue what you’ve been charged, and then inevitably find out it is significantly higher than you had anticipated or budgeted for. Unfortunately, this is probably the norm for most clients when paying for hourly legal work.
This is a poor client experience and leads to decreased client satisfaction. Large companies are reducing their legal budgets, and small businesses are resorting to alternative legal services for this very reason.
A good attorney/client relationship is based on trust and working toward the same goals. With hourly billing, the incentives often don’t properly align. Most people would agree that the cost of legal services should be based on the value received, not the number of hours it took.
And that’s where SSM comes in. Nothing is more predictable than subscription pricing. Subscription based billing provides the predictability that clients are looking for, and it aligns both sides’ incentives in the relationship.
We are in the process of developing subscription models for our different categories of clients - business startups, existing small businesses, property managers, homeowners' associations, developers of shopping centers, office buildings, industrial/warehouse properties, etc. For updates on our progress, please check back here ... or click the button to the right to receive news and and updates via email.
You can help us with the development of our subscription models by completing the following anonymous survey:
* There are several different AFA models that can (theoretically) work well, depending on the nature of the services to be provided:
Fixed or Flat Fee
This is the simplest method of alternative pricing, it means charging for a predefined service at a fixed or flat rate. This fee might be negotiated for the whole service or just part of it. An example is the drafting of non-complex contracts. Some contracts are based on a template, so charging for the time it takes to complete it is pointless, so instead the lawyer charges a fixed fee.
Contingent or Success Fee
Based on the results achieved, this fee requires a clear agreement as to what the desired results will be and what will not be covered under the fee arrangement. The most common example is personal injury litigation, wherein the fee is a percentage of the recovery. In transactional work, a success fee may be based upon the closing of an offering or the funding of a loan.
Task or Unit-Based Billing
In this arrangement, identified tasks or components of a transaction are used to measure the fee. This arrangement may also be used in complex litigation or large transactional matters where budgeting is required by the client.
Unlike a contingency fee, a percentage fee is based on a schedule of fees related to the amount involved in the matter being handled. The amount may be predetermined, such as a percentage of a loan amount being negotiated or the value of real estate being purchased, or it may be based on the amount of a bond issue. The percentage rate may be consistent or graduated.
Retrospective Fee Based on Value
This is different from most AFAs in that the exact amount of the fee is not known to either the lawyer or the client until the matter is concluded. The fee agreement should set forth the factors that would be considered in setting the final fee and, in some instances, a minimum or a maximum fee may be outlined in the engagement agreement.
Statutory or Other Scheduled Fee Systems
In some instances, the amount to be paid for legal services is spelled out in some statutory enactments, scheduled for prepaid legal service plans or by purchasers of legal services on a volume basis. Sometimes these are imposed, sometimes they are negotiated. Some reflect government-imposed social policies. Examples are social security cases, prepaid legal, insurance subrogation, and uncontested foreclosures.
This means hourly rates with maximum and minimum fees quoted.
Fixed Fee Plus Hourly
A portion of the matter may be charged on a fixed or flat-fee basis, and a portion charged on an hourly rate basis, because parts of the engagement cannot easily be defined. In an estate planning matter, for example, documentation may be based on a fixed fee, while client meetings are based on an hourly fee.
Fixed Fee Plus Success Fee
This hybrid is used when the firm has a good understanding of the services required and the client and the lawyer are willing to share in the risks associated with the matter. An example might be a securities offering where a fixed fee is charged for the documentation and a success fee is charged if the offering closes.
Hourly Rate Plus Contingency
By combining hourly billing and a contingency factor the client and lawyer are sharing risks. Since a portion of the fee will be hourly (possibly at a reduced rate), the lawyer is guaranteed a minimum amount. An example might be a reduced hourly rate in litigation with a lower percentage contingency fee upon success.