Friday, August 6, 2010

Client Choice: Flat Fee vs. Hourly Rates

There are many advantages and disadvantages to flat fee representation. The advantages include knowing the total cost in advance (which allows for better planning), understanding the full commitment at the beginning of the representation, and a resulting likely reduction in client stress. Because of these advantages many attorneys are pitching the fixed fee model as a revolution in client billing.

The problem with this revolution, though, is that firms that are switching to fixed fee billing are making the same mistake that the traditional hourly billing model makes. These firms are assuming that they know what is best for their clients.

I often tell my clients that they set the goals, and my job is to tell them whether I can meet those goals or not. If I think we can meet the goals, then my job is to use my knowledge of the court process and negotiation to try to reach those goals. In the same way that I do not believe that I can set a client's goals for them in a case, I don't think that I should set their financial goals for them either.

The main disadvantage of flat fee billing is that both the attorney and the client take a risk. If the client refuses to settle the case, or the other party refuses to settle, and the case is litigated, the attorney will likely spend more time than they assumed when quoting the fixed fee. The attorney can accept this risk because they represent multiple clients and the cases that settle quickly will outweigh these cases. The client's risk, however, is that the flat fee is more than they would have spent if their case settles quickly. The client's gain is the settlement, but they do not recover for this risk in other areas of their finances. The law of averages favors the attorneys.

Do the disadvantages outweigh the advantages? Isn't that for the clients to decide? After all, it's their money. That is why at Kelsey & Trask, P.C. we offer both hourly rate representation and flat fee billing. Call us for a one hour consultation at (508) 655-5980 and let us know if you are interested in a flat fee quote or hourly rate billing (or learn about both options).

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