Millions of low-income Americans can’t resolve legal issues because they lack the resources to pursue them. Alternative fee arrangements for law firms allow you to better serve clients and the community by opening services to those who may not have the means to pay for services upfront.

Law firms can add value to their clients while still focusing on profitability and reaching growth initiatives.

You don’t need to offer every alternative fee arrangement we’ll mention, but consider adding a few if you believe it will help you:

  • Expand your client base
  • Better serve existing clients
  • Grow your firm

Why Alternative Fee Arrangements for Law Firms is a Growth Opportunity

Growing your client base should be a top priority. Revenue growth through the first three quarters of 2023 was 4.6%, according to a survey of 120 firms. Expenses grew by 5.6% during the same period.

Firms can cater to a larger client base with fees that are:

  • Transparent: Alternative fees offer transparency to reluctant clients who may be concerned that they cannot afford the legal services that they need.
  • Upfront: Everyone understands the fees and expectations from the start. Firms can save time and resources with the right arrangement that clearly defines services rendered and doesn’t allow for work outside of the scope of service.
  • Measured by results: Avoid charging hourly for services that should be based on results rather than billable hours.

Your firm’s clients are unique. Firms need to crunch the numbers and identify the pain points ideal clients experience when using or considering services. Alternative fee structures should work in the best interests of your firm and its clients for it to make sense.

Consider all of the time and resources tied to your services because it’s easy to undervalue and underprice the services you offer.

Examples of Potential Alternative Fee Arrangements

Fee structures must work for your clientele, but the following options are go-to choices for firms:

Fixed or Flat fees

A fixed fee structure works for all parties involved when the service rendered is predictable. For example, you can avoid the tedious task of explaining bills to clients by offering:

  • $1,000 basic wills
  • $500 business registration
  • $350 trademark registration

Fixed fees give confidence to price-conscious clients who are shopping for the best value and are concerned with mounting hourly fees. Flat fees work for some services and not others. If you’re confident that you can complete a service in X hours 99% of the time, it may be worth offering this fee structure.

Phased Billing

If the legal services can be broken down into phases, you can agree to a budget for each phase. For example, litigation fees work well with phased billing. You can have a budget for:

  • Discovery phase
  • Pre-trial phase
  • Trial phase
  • Post-trial phase

Each phase can have its own scope and budget. If a case doesn’t go to trial, the client is not billed because they’ll only pay for the necessary phases. Firms can break lengthy services into phases to negate billable issues and keep steady cash flow running into the firm.

Capped Fees

A capped fee structure works well when a firm can predict the absolute maximum cost of a service. For example, a client may have a $10,000 hard cap that they can spend. You’ll need to complete the service within this cap, but the goal should be to:

  • Come in under the fee
  • Avoid going over the cap or risk losing money

Clients with a strict budget will appreciate the strict cap on fees.

Unbundled Legal Services

Unbundled fee arrangements for law firms put the client in the driver’s seat. Your client can take a DIY approach and work with your firm for more complex tasks. For example, the client may ask you to handle court filings for a divorce but don’t mind handling the rest of the process on their own.

Often, clients start out with unbundled services and will transition to a more complete service.

Contingency Cases

Contingency fee arrangements can be beneficial when clients have complex cases but may not have the financial means to hire a lawyer. With this type of arrangement, clients pay out only if the case is successful. For example, a client may pay 30% of their award in a medical malpractice case.

Contingency arrangements benefit clients, but they can be risky for firms. Some types of cases do not allow contingent billing (e.g., family law, immigration, criminal law, etc.), so it is crucial to do your due diligence before adopting this arrangement.

Subscription Models

With a subscription-based model, clients pay a flat fee every month to access predetermined services. For example, you may offer a monthly plan that gives business clients access to unlimited legal advice, regular document reviews, and help with business planning.

Firms can benefit from this type of arrangement because it offers predictable and recurring monthly revenue while building long-term relationships with clients.

Payment Plans

Offering a payment plan arrangement will make your services more accessible to clients – and make them more likely to pay their bills.

Payment plans are a straightforward arrangement. Rather than sending the entire bill at once, the invoice is broken down into installments. For example, a $6,000 invoice may be broken down into $600 installments, paid on a monthly basis.

How to Manage Alternative Fee Arrangements

There are many advantages to using alternative fee arrangements for law firms, but to maximize these benefits, they must be managed properly.

Proper management starts with identifying your weak areas. For many law firms, these are:

  • Inefficient collections – are you chasing invoice payments?
  • Utilization rates – how much of your team’s time is being spent on billable work?
  • Inefficient billing workflow – are invoices getting out the door in a timely manner?
  • Ineffective retainers – are you using evergreen or traditional retainer arrangements?

Taking steps to optimize your billing workflow can help solve many of these issues, allowing you to manage your alternative fee arrangements more effectively.

How to Optimize Your Billing Workflow

Optimizing your billing workflow doesn’t have to be complicated.

First, make sure that your matters are set up with your billing process in mind. Make sure you include:

  • The fee arrangement for the matter – billable, contingent, flat fee, staged/phased, etc.
  • Your rates
  • The responsible attorney
  • Bill recipients
  • A clear and concise description of the matter

Also, consider when invoices will be sent. Will you send progress invoices? If so, you will need to identify and clarify the stages or milestones that trigger invoices.

To further optimize and organize your billing workflow, consider grouping clients or types of cases for easy identification.

How CPN Legal Can Help Your Firm Master Alternative Fee Arrangements

At CPN Legal, we know how complicated and time-consuming bookkeeping can be for law firms. Alternative fee arrangements can make accounting even more complicated. We’re here to help. Our comprehensive bookkeeping services will keep your firm’s financials on track and free up valuable time.

Contact us today to learn more about our services and how we can help your firm.