In the old days of legal billing, attorney bills, usually a single page on fancy letterhead, contained only the phrase “legal services rendered” and a hefty dollar amount. No time breakdowns, no list of activities performed or equipment and supplies used, just a final, usually shocking charge.
But customer demands and the evolution of sophisticated billing software have led to more detailed bills today. The detailed statements have sparked debates among companies about whether billing by the hour is the best way to charge for legal services. As the legal profession becomes more competitive and dependent on high-quality client service, attorneys must embrace alternative billing methods.
Fixed or flat rates, contingency fees, non-refundable advances with discounted hourly rates, blended hourly rates, and variations on those themes are becoming more common. But many law firms have been slow to join this trend: Lawyers still do about 95 percent of their corporate legal work by the hour.
What does that mean for your small business? If your business is currently working with a law firm or seeking legal advice, try asking for alternative billing options. While many law firms rarely initiate options, they will negotiate when presented. If you want something better than the old “billed by the hour” offer, try introducing one of these billing structures:
Project billing for routine issues.
If your legal needs include large but repetitive tasks, consider a flat fee approach, also known as project billing. If you need legal assistance on a large investigative project that involves several repetitive tasks with considerable predictability for cost estimation and time duration, ask for a dollar cap on predetermined services. Be sure to compare the estimated costs with the equivalent hourly rate – a projected cap that far exceeds any probable bill is really no cap.
Once you get a billing estimate for the project, feel free to shop around. Making an informed decision (searching, comparing prices and services with other law firms) makes good business sense, especially if you intend to hire a firm for a single project. If you anticipate establishing a long-term relationship, mention this when negotiating the amount of the project: a company may offer a better deal if they expect future work from your company.
Results Oriented Options
Forget the image of personal injury lawyers taking a third of any verdict or settlement. Consider instead contingency fees, fees based on the outcome of the case and the performance of your lawyer. The creative use of contingency fees can create efficiencies in even the highest-end corporate environments. If you hire a lawyer to help your business avoid litigation, combine a reduced hourly rate with a bonus for successfully reducing your litigation expenses.
You can also set an incentive based on a percentage of the money earned or saved in the trial. If you’re a defendant in a case where the plaintiff has a great chance of settling for $1 million, negotiate a flat fee if the case goes to trial, plus a bonus if the plaintiff ends up receiving less than $1 million. If you are a plaintiff and estimate your case is worth between $1 and $2 million, you can negotiate for services for a flat fee plus a percentage of any settlement over $1 million.
Contingency fees make the matter a shared risk or shared incentive, making the law firm your business partner, not just your representation. Contingency rates can work well with both fixed rate arrangements and reduced hourly rates. Because there are a number of variations on the “pay as you go” theme, you should ask companies what options they are willing to explore.
multi-layered tasks
If you are looking for a firm for substantial legal work involving a number of legal specialties, consider using blended hourly rates. Instead of each lawyer billing at the usual hourly rate, the firm calculates an “average” rate in advance based on the anticipated time each lawyer spends on the matter.
The value of this agreement is twofold: it helps define responsibility on a project and provides a fair pricing schedule for the client, which avoids paying a senior partner’s hourly rate for research that a junior associate would have to do.
Legal “insurance” firms without an in-house attorney who frequently retain legal services might consider retaining a firm. In this legal billing option, firms and clients agree to a specific charge per month in exchange for a predetermined set of legal services. The contract fee allows the client to pick up the phone and speak to the attorney without looking at the clock. This approach works like a legal insurance policy. It encourages companies to contact their attorneys in matters other than litigation and crises, and save money in the long run by engaging in more preemptive legal action.

Just like in business, the impetus for change comes from consumer demand. The sooner companies take the initiative to secure more effective personalized billing methods from their legal advisors, the sooner they will get better and more cost-effective legal assistance.