Fee arrangements are one area where we can judge which law firms are leading the way in putting clients' needs first.
For decades, law firms have used the billable hour model. These days, clients demand greater cost certainty and transparency, all of which can be achieved through alternative pricing structures. Ultimately, clients want efficiency and value for money.
The number of law firms offering alternative fee arrangements has risen drastically since the pandemic. The Bellwether 2023 report has revealed how smaller law firms are taking charge of this, as the billable hour is still dominant amongst the community of larger firms.
According to a 2021 survey of law firms with 100 or more fee-earners by , only 43% of UK law firms with more than 100 lawyers offered alternative fees like fixed or capped fees.
When asked why they use alternative billing methods, in our report ‘Calling time on the billable hour’ 85% of law firms said their use is driven by client demand. Yet, 98% of respondents in the survey said they had increased target hours for lawyers, with nearly half doing so by over 10%.
In the meantime, clients are pushing for value-based billing. Cost savings, certainty and general efficiency are the top reasons why they want alternative billing structures, at 81%, 65% and 49% respectively.
While many larger firms are only now switching to more flexible billing models, small firms have embraced this model for a while, so can it be argued that the smaller law firms and solo practitioner communities are more flexible?
Is this why they can apply multiple types of fee arrangements, according to the client's wants, compared to their bigger counterparts?
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The Bellwether 2023 report revealed that 79% of respondents still use the billable hour to charge clients, although not exclusively. 60% of respondents also use the fixed fee by matter fee arrangement to charge clients. 20% of respondents use capped fees and 28% use flat fees.
This clearly shows how smaller firms have been able to generate growth in recent years. By offering flexible payment options, such as fixed, capped, or flat fees that work for the client rather than for the firm.
Respondents in the Bellwether 2023 report also cited other fee structures such as "No win no fee," plus "conditional fee" arrangements and legal aid. Only 8% said they charge exclusively by the hour.
In ‘How should small law firms price’, Sally Azarmi, Founder of Azarmi & Co, a boutique international law firm, said: "There are many ways of billing a client: hourly rates, fixed fees, value-based, capped fees, conditional/contingent fees etc."
"Rather than thinking that a particular case may take 10 hours of time and multiplying that by the hourly rate to come up with my fixed fee, I now also think in terms of what value that case will have for the client."
"Over the years, I have learnt that pricing is at the heart of my law firm. Get it right so that you are fair to the client but also don't be afraid to back yourself. When you and your clients are happy, there will be an abundance of work and profit."
Of course, not all work is suited to alternative billing arrangements and fixed fees are not a one-size fits all solution.
Different practice areas will always require different ways of billing. We spoke to law practitioners to find out if any practice areas are beholden to particular fee arrangements, and if so, why.
In the Bellwether 2023 report, the top practice areas cited as using specific fee arrangements were:
The Bellwether 2023 report responses indicate that firms generally agree on flat or fixed fees should only be used in more predictable matters.
"If you're a big firm doing debt capital markets transactions, you're probably doing thousands of those, and so you've got a very good idea of what your fixed charge ought to be," said Stephen Denyer, director of strategic relationships at The Law Society of England and Wales.
"On the other hand, if you've got a major, multi-party M&A transaction or a restructuring or a bit of litigation that could go in lots of different directions, you've got no realistic way of knowing what elements there are going to be and therefore what you ought to charge for them."
Regarding family law matters, Geraldine Morris, who practised family law for 15 years before moving to UUֱ to head up their Family Law News Desk, said: "Fixed fees for a divorce suit and even more straightforward financial and children proceedings in family cases may also be adopted, along with 'blended rates' where different levels of lawyers may work on a case."
According to Azarmi: "Fixed fees work perfectly for me in the immigration work we undertake. The steps/scope are well defined." Clients "appreciate the certainty they can have at a very stressful and difficult time in their lives, through fixed fees."
"On the other hand, we also practice litigation, and one of the worst decisions I ever made was to try to fix fees on an arbitration. Contentious matters can only be taken in stages, and best estimates must be given for each stage. There are too many unknowns to fix costs," says Azarmi.
Read our full Bellwether 2023 report and explore our insights on how to build a bold and beautiful business strategy for small law firms and solo practitioners.
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