Nearly all law firms still use the traditional billable hour. Nonetheless, 84% of law firms also offer alternative fee arrangements (AFA) to charge clients for their services. Bloomberg Law’s 2021 Legal Operations Survey shows that flat fee billing was the most widely used AFA among these law firms in the past year.
Flat Is All That
The survey shows that 71% of firms that perform work under AFAs use flat fee billing when servicing clients—far more than the next most popular choices, blended rates (48%) and retainer agreements (46%).
The use of flat fee billing may be less of a strategic decision by managing partners and more of a business necessity, as our survey also shows that a whopping 85% of firms using AFAs report that client demand is a factor in driving their use, and understandably so.
For clients, the transparency of flat fees makes them easier to understand and plan for. Clients also have financial certainty knowing that once payment is made, they don’t owe a penny more—even if the firm has to put in more time on the matter than anticipated.
Law firms also enjoy benefits in offering AFA models. Thirty-five percent of firms report that the positive marketing aspect of AFAs is a factor that influences their use. And with cost/revenue certainty coming in third place at 33%, firms also realize that AFAs like flat fee billing can help their own internal annual profit projections.
It would be wise for firms to continue to make AFAs available to remain competitive. The clarity of how flat fees work coupled with the predictability that it lends to the balance sheets of both law firms and clients suggest that this billing model is not only here to stay, but will gain even more popularity.
If you’re reading this on the Bloomberg Terminal, please run BLAW OUT <GO> in order to access the hyperlinked content or click here to view the web version of this article.