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How should lawyers charge for services?

By Roger P. Glovsky

There are three ways to charge for legal services: hourly, fixed fee or contingency. I typically charge for work on an hourly basis. Even when I offer clients a "fixed fee", I have to estimate the amount of time it would take and base the estimate on some equivalent amount of time. Other lawyers charge on a contingency, but that is not generally appropriate unless the matter has a significant payout and easily definable objectives.

So how should lawyers charge for their time? Lawyers are are split as to whether to charge for a fixed fee vs. hourly.

Tom Kane, a marketing consultant and former practicing attorney, suggests that small firms can gain an advantage over large firms by "looking seriously at alternatives to billing by the hour".

Chris Marston, founder of Exemplar Law Partners, LLC, a firm that claims to be the "first corporate law firm in the nation to exclusively adopt a fixed price model", believes that fixed pricing must be based on "value to the client".

Jeffrey Lalloway, a divorce lawyer in California, advises "not to hire a lawyer that is not willing to work on a fixed fee basis."

Joseph Grasmik, a business immigration lawyer in New York, publishes "typical fees" on his website with detailed FAQs, but then invites potential clients to request an estimate for a specific matter. Mr. Gasmik also publishes a "do-it-yourself" engagement letter that clients are supposed to fill out and sign based on quoted fees.

My approach is not to be strictly limited to either fixed fee or hourly rates. For some matters, like incorporation, a fixed fee is appropriate because the nature of the work is known and can be estimated based on prior experience. For other matters, the time or work is not known and may be disproportionate to what the matter is worth objectively (because the client wants to pursue it for non-monetary reasons). What is important is to set expectations reasonably and to put the client in control of deciding what services they wish to buy.

In yesterday's blog, I wrote that Knowledge Management will drive law firms of the future. If law firms develop high quality knowledge systems, how will that affect pricing? Will that make fixed fee billing more likely to be offered?

How do you think lawyers should charge for services?

Full post as published by The Virtual Lawyer on February 19, 2007 (boomark / email).