Feel like you lose when you try flat fees? Here’s how to win!
When we talk about the magic of breaking up with the billable hour, one of the first objections we get from other lawyers goes something like this:
“I tried flat fees, and I lost big time – I’d have made more billing by the hour.”
Those lawyers aren’t necessarily wrong, but they’re also not seeing the full picture. Deliverables-based billing works beautifully, when you deploy it the right way – but there’s some nuance to getting it right. Lucky for you, we’ve done the work (and learned the lessons the hard way) to figure it out.
If you’re interested in giving deliverables-based billing a try in your own practice, here are 5 key points to consider:
1) Start Small. Choose one or two types of engagements or projects that you want to move off of hourly billing, and start there. Don’t try to transform your whole practice all at once, but instead think about using this subset of projects as a way to get great at deliverables-based billing – build muscle memory around the new way of pricing, pitching and building profitability. From there, you’ll find that you naturally start to see additional projects that you could move onto your new model.
Give yourself permission to treat this as a small experiment. No need to worry too much about whether you get it exactly right the first time (or the first 10 times), because you’re only trying it out on a small piece of your revenue. The risk is small, but the rewards can be huge. Commit to the shift for a small portion of your practice, build your confidence with it, and then you can feel great about flipping the switch for the rest of your practice.
2) Deliverables-Based Fee Ranges eat “Flat Fees” for breakfast. Did you notice above that I referred to moving projects onto deliverables-based billing, and not “flat fee” billing? Totally intentional. Flat fees are where lawyers lose big time, because we tend to paint ourselves into a corner, setting a fee for a narrowly defined scope and then not having a way to adjust the fee when the scope inevitably shifts. Flat fees often result in both the client and the lawyer being frustrated. Not ideal, at all.
On the other hand, if you set your fee as a range, starting from the basis of the anticipated deliverables within the project, and allow for the possibility that the complexity might be higher than you initially expect, or that the deliverables (ie, the components of the project) might shift as the project evolves, then you’ve protected against the “lawyer always loses” aspect of flat fee pricing, and both you and the client have a clear way to understand when and why the fee might increase along the way. The client still has clarity about their fee, right from the start – no surprises for them, and you’re only doing work they are happy to pay you for.
To make the process of scoping projects and setting fees easy and repeatable, we developed the P3 Method. Our P3 Method gives us a framework for calculating fees and ranges based on the deliverables and variables. We think about deliverables in terms of “points” (instead of hours), and with a set price per point, the math gets really easy. Check out our course, if you’re interested in plugging our method into your practice.
3) Build Efficiency + Build-In Expertise. When you’re billing on a deliverables-based model, you have every incentive to help yourself (and your team) deliver the work efficiently. The less time it takes you to produce high-quality work, the more profitable you can be. So, right from the start, you’ll want to capture your best practices and keep adding to them and refining them as you go. We call our library of “how to” documentation our Playbooks, and we store them in our project management system. Note that this isn’t just about capturing the mechanics of how to do the work, but also about capturing substantive content – those legal quirks, additional related issues to consider, and even nuances about how to talk about particular issues with a client. This is about making the work faster AND higher quality, with less mental load.
Wherever you decide to capture your Playbooks, think about making it someplace the whole team can easily access, index them well, and make them easy to update. It takes a bit of extra time on the front end to capture the details of how you do the work on a particular project, what document template to use, or what go-to resources you prefer to reference on a topic – but that time is an investment in your future ability to work more efficiently, delegate work to others, continuously improve the quality of your work, while you vastly increase your profitability.
4) Winning or Learning. This one is true more broadly – and critical to remember in the shift away from hourly billing. You’re going to win some, and you’re going to learn some. Adopt the mindset that you’re either winning or learning, but never losing. Every lesson gets you one step closer to the win, as long as you take the time to look at it and actually learn the lesson. When you win, celebrate (and take a minute to look for the lesson in the win, too!). When you don’t, learn from it and move on. In both cases, build the lessons in to your business so you never have to learn the same lesson twice.
Even better, take every opportunity to piggyback off of the lessons that others have learned. You can take huge leaps forward, confidently, when you follow the path paved by someone else – just make sure it’s someone who has actually accomplished the goal you want. (Put differently, don’t take advice from people who haven’t been where you want to go.) That, my friends, is #winningorlearning at its best.
5) Enjoy the Ride. When you’re using deliverables-based billing, you are freed up to really enjoy your practice. You can have a real, human-to-human conversation with your client, because they’re not worried about the ticking of the clock. You can explore better ways to do your work – new software, all the AI, remote work, different team / staffing configurations, claiming more time freedom for yourself, etc. The time you spend exploring and finding what works for you becomes an investment in your increased efficiency, effectiveness, profitability, and in the joy you get from your practice. Yes, you can have JOY in your practice. And you should – starting right now.
BONUS TIP: Find a Pricing Pump-Up Partner! In our law firm, Gwen and I often bounce pricing off each other – and we often find that the person leading the project will tend to underprice it. There’s a whole lot to dig into on the psychology behind that (enough for several posts, I’m sure!), but we’ll leave that for another day. Bottom line: find someone who can help you pressure-test your pricing. It might be that you have underestimated the complexity or potential variability in your project. It might be that your partner reminds you of additional deliverables or steps that are likely to pop up in the engagement. Or maybe you just need to be reminded how valuable your expertise really is (and it IS SO VALUABLE!). Your Pricing Pump-Up Partner will surely help you navigate those mental blocks and confidently price projects commensurate with their true value. That’s a huge piece of the win when you break up with hourly billing.
If you are a solo practitioner, or just want someone who is well versed in deliverables-based billing to help pressure test and pump you up, head over to the ADVOSphere (our free, private community space) – there are lots of us there, and we can’t wait to cheer you on!
And if you’re curious about what the impact of deliverables-based billing could mean for your firm’s cash flow, profitability and your own time freedom, check out our Cash Machine Calculator. It’s a great tool to see your potential results and keep your motivation high as you contemplate breaking up with hourly billing!
To your success, friends!
Whitney