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A Complete Guide to Alternative Fee Arrangements [Part 3]

A Complete Guide to Alternative Fee Arrangements [Part 3]

11th August 2022

Pros and Cons of Alternative Billing Arrangements for Lawyers

HAVE YOU READ PART ONE?

HAVE YOU READ PART TWO?

The benefits of alternative billing arrangements for lawyers are plenty, especially when we’re talking about building a client-centered law firm. However, like any fee structure, there are pros and cons to consider. Let’s compare some of the alternative fee arrangements discussed in the previous section:

SUBSCRIPTION OR PERIODIC FEE

Pros: Gives the client access to a variety of legal services for a set fee.

Cons: Careful attention needs to be paid to scope of projects to ensure they stay within the subscription terms (or additional costs are added as necessary).

FIXED OR FLAT FEE

Pros: Simple to explain and calculate, great for straightforward projects.

Cons: Only works for matters that have a clear scope of work.

PORTFOLIO FIXED FEE

Pros: Provides an easy way to bill a business or organization for a straightforward legal matter.

Cons: Like the regular fixed fee, it only works for legal matters where the scope of work is clearly defined, and the lawyer must be careful to not go outside of that scope.

STAGED OR PHASED FEE

Pros: Helps break up matters that have a large cost, and encourages regular payments when milestones are met, increasing matter realization rate.

Cons: If a stage or phase of a matter isn’t completed or up to the client’s liking, then payment may be delayed as well as the start on the next phase.

CONTINGENCY FEE

Pros: The client only pays if the legal matter has a successful outcome.

Cons: The lawyer or firm assumes all risk, and needs to be mindful of the chance of a legal matter being successful before agreeing to this fee arrangement.

FEE COLLAR

Pros: Encourages efficiency — the less time needed to complete a matter the better.

Cons: Time spent is still used as a guiding principle.

UNBUNDLED LEGAL SERVICES

Pros: The client only pays for what they need, and the lawyer only performs the work that needs to be done.

Cons: The client may not fully understand their legal issue, and limiting services actually hinders the client more than it helps them.

SLIDING SCALE FEES

Pros: Increases access to legal services.

Cons: The lawyer makes less money.

SUCCESS FEES

Pros: May result in more overall earnings even with a discounted rate and aligns interest between the client and law firm (on the same team).

Cons: The lawyer assumes more risk with the case in terms of earnings.

The most important thing to keep in mind is that different fee structures will work better for different legal services. Most forward-thinking law firms use a value based pricing strategy to inform how legal services will be billed, which means that the best alternative fee structure will be chosen to fit the specific needs of the client as well as the legal matter.

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