Fee Structures

Time to discuss a dirty word: Billing. Filthy naughty billing. At least, its dirty when its discussed in the open but lets face it - it is the core of every legal firm regardless of size, ethos or approach.

The Bottom Line for Billing Structures and Document Assembly

Document assembly will ONLY help your bottom line under a "per hour" (traditional) billing model if one or more of the following apply to the area of practice you invest in...

WIP write offs every month

As a result of inefficient document dictation, drafting, proofing and finalization, your professional staff are (for example) recording 6 hours a day, but on average only billing 4 of them. In this scenario, you are looking to build a system to reduce drafting & proofing times, so that your lawyers record 6 hours a day and bill upwards of 5.

The bottom line records +1 hrs per professional staff member. How do your WIP to Billed ratios look? Do you want a higher percentage of WIP to be billed per professional staff member per month? The only way to achieve this is to get more efficient drafting methods in place, or to look at the efficiency of your staff.

Inaccurate Legal Content

For one reason or another, your firm is sustaining losses due to inaccurate legal content in your final work product. Perhaps you have had to forego all charges on a matter. If your work product could be better, what better way to improve it than document assembly? Have your finest legal mind work on a system that incorporates their decision making and file handling process into a fixed system available to all. Your best intellect on every document. Perfect.

Under Resourced

You are (for one reason or another) under resourced and cannot meet your work commitments to a level of achieving profit. Perhaps a large client your firm obtained is punishing you with workloads. Or maybe you've had real difficulties in finding quality replacement staff. Maybe a senior lawyer has been sick for an extended period of time, or has other commitments that keep them from minutely managing day to day happenings. Again, what better way to address these issues than to embed your best legal mind's intellect and approach into a system, putting your least experienced staff member in a position to draft quality documentation with minimal supervision?

In case you haven't noticed, highly complex document assembly systems under a traditional billing structure alleviate specific issues. They do not proactively generate profit. I understand that alleviation of these issues would be a great burden lifted for many a law firm, but this situation is not the utopian circumstance for document assembly. In the alternative...

Flat-Rate (Value Based) Billing

Some areas of practice lend themselves to flat-rate fees or scales of fees. Quite often, firms will undertake winding up matters at a flat rate professional fee, on the proviso that should the matter become defended, a "regular" billing structure will become effective. Large companies will routinely negotiate flat rate fee arrangements (say, a shopping centre will pay $x per lease finalization), or firms will undertake debt recovery "at scale" or a percentage of that scale.

These areas of practice are of no concern with this section. This is because they are actually high profit practices just waiting to be made profitable. If you are billing your clients on a flat rate (value billing - they pay for a result, not time spent), then all you have to do is ensure you spend as little time as possible per matter while maintaining a quality deliverable. This is pure profit just waiting to be made. No, I'm not jumping to conclusions – this is the utopian scenario for high end document assembly.

But what if you are spending large amounts of resources to program a high end document assembly system for an area of practice that is on a "per hour" billing model? All the document assembly system is going to do is reduce the amount of billing per matter. Seriously – what are you going to do when you can draft all the documents for a winding up matter in under 20 minutes? Bill the client $400.00 fees for document preparation, and a further $800.00 for two court appearances, plus petties? Not likely!

How do we avoid this? Consider a flat rate billing model.

• Find the mean amount charged per matter over the last year or two in the area of practice you are planning to build a system for
• Flat rate at that mean amount, or a slightly higher/lower figure to suit

This may seem as if you are "settling for mediocrity", but the mean figure you come up with will represent the amount charged on average before the massive efficiency increase of a document assembly system. It will also represent what your clients were charged to achieve a result on average (and happy with said charge, if they are still your clients). So if your mean figure for winding up was $1,800.00 in fees, you could build a system that allowed a lawyer to spend 4-5 hours per file (inclusive of 2 x court appearances) and a secretary or paralegal a further 2-3 hours. With your mean fee of $1,800.00 per matter "flat rated" at $1,600.00, the profit margin is decent. If your firm actively seeks this type of work, the profit margin is huge, as the system is doing most of the work.

Or, if flat rate billing for some reason will not be acceptable to your clients, consider a minimum fee cap. Instead of "$1,600.00 per undefended winding up matter", propose "$1,200.00 per undefended matter, to a limit of 6 hours contact time, billed at $200.00 per hour thereafter".

The idea here is to shift the focus of your charges - they are not paying you per hour of your time spent, but rather, they are paying a fixed (or semi-fixed) amount for your firm to achieve a result. If you are working from a mean (or slightly lower) amount, you are not charging them any more for the same service they have received in the past. Many clients will appreciate the opportunity to fix costs - they can budget ahead of time and no longer need to seek quotes or estimates.

When you can offer a fixed rate (or semi-fixed) per matter that is going to be equivalent or cheaper to the client, yet is going to offer increased profit for your firm, everyone wins.

If you have an average billing on a matter, and the top/bottom 5% of matters do not vary from the mean too far (in terms of billing), then you have a reasonable situation to flat rate or minimum fee cap with very little inherent risk. Even better - your clients will feel that you have some skin in the game, as you are paid for an outcome, not your time.