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A Complete Guide to Alternative Fee Arrangements [Part 1]

A Complete Guide to Alternative Fee Arrangements [Part 1]

28th July 2022

The billable hour has been hanging on for dear life in the legal industry for decades. But both lawyers and clients are starting to see the light at the end of the tunnel.

The truth is, the billable hour no longer supports the needs of today’s legal clients. Clients are increasingly asking for better access to legal services, including more transparent pricing, better communication with their lawyer, and an overall commitment to a positive client experience.

These days, words like “a better client experience,” and “client-centered law firm,” are much more than just buzzwords, they are essential for the success of law firms today.

That’s where AFAs, or alternative fee arrangements, come in. They are one example of an essential step in the right direction and have already been adopted by forward-thinking law firms that want to provide better client experience and better working conditions for their legal professionals.

These factors — with AFAs at the center — often result in an overall more efficient and profitable law firm. That’s a big reason why, according to a recent Bloomberg survey, 84% of law firms use some form of AFA for their services.

You’re here because you want to learn more about alternative fee arrangements, and we’ve got you covered.

Definition of Alternative Fee Arrangement

At its core, an alternative fee arrangement refers to pricing for legal services using anything other than the traditional hourly billing model. For decades, the hourly billing model was really the only way that law firms and solo practitioners would charge for legal services. However, with more and more firms seeing the benefits of running a client-centered law firm, the adoption of AFAs is becoming increasingly common for law firm pricing.

What is AFA?

Common AFAs that you might see out in the wild include subscription-based, capped fees, flat fees, success fees, and more. These are all examples of alternative billing service fees that differ from the traditional hourly model.

Why are Law Firms Moving to AFAs?

The legal industry is experiencing a major shift away from traditional practices in several aspects, including embracing cloud-based technology and providing more transparent and client-centered experiences. A big part of this shift, and one that supports the other two shifts mentioned, is a change in how legal services are billed.

A 2021 survey by Bloomberg Law found that the majority of law firms surveyed switched to AFA-based flat fees because their clients simply demanded it. This trend is consistent with what other legal reports have found, with Clio’s 2020 Legal Trends Report noting that 78% of consumers want lawyers to adopt pricing or payment models that make legal services more affordable, but they are careful to note that affordability should also align with value (in other words, a legal service doesn’t need to be cheap to be considered affordable if it provides enough value in the client’s eyes). Clients are no longer happy with accepting uncertainty with legal services pricing, and AFAs are the logical solution to that.

But it isn’t just about client happiness, alternative billing also supports better working conditions for lawyers and other legal professionals. The billable hour doesn’t just encourage inefficiency with things like time reporting, it often leads to lower realization rates because lawyers are forced to give discounts or misreport total hours spent on a client matter to pacify unhappy clients.

With AFAs, lawyers can confidently present pricing to clients, and not have to reduce their fees or lower reported hours to get bills paid.

To support a move to AFAs, law firms should adopt a collaborative pricing tool that helps their legal professionals manage multiple pricing strategies. AltFee is a tool built from the ground up by lawyers, for lawyers for just that purpose. With AltFee, it’s easy to include every necessary stakeholder for pricing different projects to land on the best pricing structure.

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