In the past few years, the legal industry has seen significant changes in how client service is delivered. Traditionally, law firms operated under a billable hour’s model, where clients paid for every hour of legal work performed. However, this model has faced criticism for being expensive, inefficient, and not always in the best interest of clients.
As a result, more than 40% of firms are now using alternative fee arrangements (AFAs) that better align with their clients' needs and expectations; due to this, 29% of all work is now performed under an AFA. In this blog post, we will examine how client service models are evolving in the legal sector and how these changes are affecting law firms and their clients.
Flat fees, fixed fees, and retainers
Usually, a flat fee is determined based on the complexity, time, and resources required to complete the project. For instance, a law firm may charge a flat fee for drafting a will, preparing a trademark application, or conducting a simple real estate closing. The beauty of a flat fee is that it allows clients to know the cost upfront, which reduces uncertainty and helps them budget accordingly. Flat fees promote efficiency, fairness, and transparency, especially when compared to hourly billing, which leaves ambiguity for clients concerned about the end cost.
Fixed fee determines the fee based on the specific legal work, which may be more complex and less predictable than the services covered by a flat fee, allowing a more robust payment system, though providing similar benefits such as attractiveness to clients through certainty of price, and avoiding unexpected costs and billing disputes.
Alternatively, retainer arrangements are usually paid upfront to secure services over a specified period. Retainer models are a mutually beneficial arrangement that provides clients access to legal counsel whenever it may be needed over the period, while providing the firm a source of consistent revenue and fostering relationships with their clients, building loyalty.
These AFAs provide firms with the ability to reduce their administrative workload while promoting efficiency, reducing the amount of time spent on the billing process, and freeing fee earners from the need to track billable hours. Providing a competitive edge to firms using these models by attracting clients, reducing workload, and increasing productivity.
Contingency fee is an arrangement where the firm only receives payment on successful outcome, such as a win in a lawsuit or settlement. Suitable for clients who have limited resources, but the potential for a large pay out if the lawsuit is successful. Allowing for efficient case selection, firms can be more selective with cases they take on a contingency basis, taking on stronger cases and leading to a higher success rate for the firm.
These agreements can also be very appealing to clients; offering them a no-risk option for their case is likely to increase client satisfaction. In turn, this will increase the firm’s client base while also improving public image and relations by positioning the firm as champions of justice. Offering no cost to the client while taking a percentage of the successful outcome means firms can stand to earn a substantial sum in high value cases, often higher than through the traditional billable hour route.
With the blended rate AFA, instead of billing at individual rates, firms calculate an average by combining the rates of all the legal staff working on the client's case. Promoting collaboration throughout the firm, as the emphasis is on working together as a cohesive team to achieve the best outcomes for clients. Powering the firm with efficiency, incentivising productivity, and encouraging cross-selling and collaboration among the team. This approach provides consistency and predictability, leading to stronger client relationships and increased loyalty to the firm, positioning the firm with a strong advantage in a competitive market.
In this ever-evolving landscape, firms are embracing alternative fee arrangements that prioritise efficiency, client satisfaction, and cost certainty. By adopting AFAs, law firms can streamline their administrative processes, attract a broader client base, and focus on delivering exceptional legal services. As the legal sector continues to evolve, alternative fee arrangements are proving to be a driving force in reshaping client service models and elevating the industry to meet the needs of clients and grow in the modern era.