Fixed Legal Fees And Making A Profit
Of course, like any other business that charges some cost for its services, fees are the lifeblood of a law practice. Legal fees depend on several variables: the time necessary to remedy the problem; the lawyer’s ability, experience, and reputation; the novelty and difficulty of the case; the results; and associated costs. A lawyer’s overhead expenses such as rent, utilities, office equipment, computers, also affect the fee charged.
Profit is a lawyer’s income. In the case of a law practice, it is what remains after paying the aforementioned overhead costs of the practice. Research indicates that attorneys may expect to keep approximately 55% to 70% of every dollar of fees. This percentage that equates to profits includes disposal income, fringe benefits, and retirement plan contributions.
A fixed or flat fee is a pre-arranged total fee that is paid before services are rendered to complete all work necessary for a legal matter. One benefit of fixed fees is that clients know precisely the cost of the requested legal work before it even begins. Also, clients tend to perceive the value of the services more favorably since the cost of services is immediately resolved. For the attorney, there is no risk associated with collecting fees after they have been rendered. Also, the attorney only begins working after being paid.
The negatives associated with such fees relate to legal matters where it may be difficult to accurately calculate the total fee amount before the fact. Also, any risk associated with any additional time spent is passed on to the business, which may reduce profit margins or even cause losses.
Examples of legal services for which fixed fees are charged include simple divorces, Chapter 7 and Chapter 13 bankruptcies, and estate planning documents. For those attorneys whose practices operate primarily on fixed-fee arrangements, the fixed fees set for an attorney’s services may be based on cost per hour.
Fixed fee work infers that an average number of hours are necessary to produce the client’s desired results. Attorneys who engage in a general law practice may calculate the time spent on various kinds of matters in different legal areas, whether estate planning, family law, criminal, or bankruptcy, and determine the average hours expended per each matter.
Then multiply this average by the cost per hour to determine a preliminary or “ballpark” fixed fee. Some attorneys add a premium to this base fee because of the removal of any cost risk away from the client, which consequently adds value. This should be considered a positive aspect of the fee arrangement for which the client is happily willing to pay.
Most lawyers use a combination of several billing methods that include hourly rates, fixed fees, and contingent fees. A review of hourly cost versus actual fee income may help to determine where attorneys should focus their efforts to generate new business or reconsider fee arrangements to generate and sustain increased profits.
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