scissors cutting through costsWelcome to day 4 of our 30 day challenge. Our last discussion looked at how lawyers can leverage free advertising. This discussion is going to look at a flaw in lawyers’ business model – the money you’re losing in administrative time. The answer to this problem, which most attorneys don’t even realize is a problem, is simple. You’re going to work fewer hours, and make more money, by charging your clients less. Right now many are going “huh?” Let’s look at how this change will make you more money.

Attorneys make more money by switching from hourly rates to flat fees

The attorney business model is insane once one thinks about it. Does your business plan consist of spending massive amounts of administrative time (which you can’t charge for and doesn’t help your cases get pushed along) just so you can generate a huge hourly bill that the clients are only going to pay a percentage of anyway? If you’re like most attorneys then the answer is yes. Here’s a news flash – all that matters to your business is the amount you actually collect and the total amount of hours worked (non-administrative or administrative) in generating that revenue. Attorneys typically measure how much they worked on a case only by looking at time actually billed for. When you add all that administrative time and uncollected fees then your rates don’t seem so high do they? Let’s fix this.

I started my firm in August of ’06 and primarily practiced family law. By 2010 I was generating seven figures of revenue and virtually every dollar was collected. Almost every case I took was a flat fee and I was almost always unbundled. This was done by dividing cases into stages. When a client retained us to start a divorce, we represented them through a specific event in the case for a set amount. Once that point came the client could re-retain us with another set fee, for the next “stage,” or we would withdraw. The flat fees we charged were far, far, far, far (did I mention far) below what our hourly rates would have been and were cheaper than many other lawyers in Las Vegas. The beauty was that by reducing the administrative time that went into a case we actually netted a higher effective billing rate when revenue was divided by total hours worked. In other words, we worked smarter instead of harder.

Before you wonder how this saves so much time, ask yourself a few questions. How many days do you spend generating invoices to clients each month? How much time do you (or the staff person you are paying) spend on the phone reminding clients to pay their bill? How many hours do you spend drafting and filing motions to withdraw for non-payment, attending hearings on those motions, and drafting the orders granting your withdrawal? Depending on the rules in your jurisdiction most, if not all, of this money-draining, profit-depleting, waste of resources known as “administrative time” goes away by switching to flat fees and appearing in an unbundled capacity. This change, along with others we’ll be making this month, reduces the administrative hours in a case and increases your profitability.

There’s another benefit of switching to flat fee/unbundled representation. You’ll get more clients. First, it’s no secret that Americans are struggling financially and that wages aren’t growing for many people. This means that even though law schools continue to churn out a surplus of lawyers, there are fewer clients to go around. Second, when you pick up the phone and remind hourly client to pay their bill, you are creating tension in the attorney-client relationship. That person becomes less likely to refer someone to you. Fewer referrals equal less business. Fix this by ditching your hourly billing system. Then you look like this guy:

Raining Money

Switching to affordable flat fees doesn’t make you a “cheap” lawyer. It make you an efficient lawyer who provides high quality legal services at lower rates because you are more efficient than your colleagues. Our clients received a high level of representation, met with us in our posh office, and felt like they were receiving extremely expensive services at a very reasonable rate. So in other words, making your business more efficient is going to both improve your profitability and save your clients money (which leads to more referrals) at the same time. Remember the attorney we mentioned in day 1 of our 30 day challenge? We switched him over to a system like the one I just described. In 90 days his monthly revenue went from $10,000 to $30,000. Not a bad improvement.

Day 4 action items for attorneys wanting to increase profits

Things are moving quickly at your firm. It’s important to make sure that you’re making these changes stick. Let’s start with a little follow up:

  1. On day 1 we put a plan in place to improve conversions. It’s time to check in on your staff and making sure they’re confirming your appointments in the way we discussed. Since many of these confirmations are going to be by text you can always take a look at the phone and make sure this is actually happening.
  2. On day 2 we put a plan in place to improve your office’s “phone pitch.” Check in on your staff and make sure they’re following the new pitch you developed.

Today’s changing of your fee structure is more of a fundamental change to your practice. Develop a staged flat-fee structure, like the one described above, and start offering it to potential clients. As this is a more profitable approach, for many lawyers, than billing hourly you should be pushing this as your preferred billing plan.

Tomorrow we’ll continue our discussion on making it easier for people to retain you while continuing to make your office more efficient.