Flat Fee vs. Hourly Billing For Law Firms: Which One Is Better?

There is an ongoing debate as to whether law firms should bill on an hourly basis or with a flat fee.  Though hourly legal billing has been the norm for decades, those arguing in favor of flat fee legal billing have somewhat of a meritorious argument.  Thankfully, legal billing software and e-billing have emerged to facilitate billing by the hour and also through flat fees.  Let’s take a quick look at the legal billing pros and cons of both approaches.

The Case for Hourly Billing

Those in favor of hourly billing insist it is comparably effective.  Attorneys who use practice management software for hourly billing have the positive reinforcement necessary to invest time in a client’s case.  If the case is neglected, time is not invested in the case and the end results prove mutually destructive to the attorney and client.

Hourly billing is also favorable as it has inherent checks and balances.  Attorneys who bill massive blocks of time yet fail to provide an explanation for those hours will be held accountable.  In other words, hourly billing with descriptions makes it that much easier for clients to determine if legal practitioners are actually working hard on their cases.

Making hourly billing that much more appealing than flat fee billing is the fact that attorneys who work for a flat fee often refuse to return phone calls as they are focused on recruiting more and more clients as opposed to serving those who’ve already passed through the intake process.  Furthermore, attorneys who bill for a flat fee sometimes fall into the trap of grouping client cases with one another both in terms of procedure as well as priority.  This means that a case that requires 40 hours of work might only receive 5-10 hours of work simply because the flat fee is the same as that charged to a client with a case that requires comparably few hours of work.  

The worst possible outcome is neglecting flat fee cases up until the point when a hearing arises.  Alternatively, attorneys who work on a flat rate are that much more likely to invest time and effort in the cases simply because they have positive reinforcement to do so.

Making the Case for Flat Fee Billing

If your law firm has a litany of overdue invoices as a result of hourly billing that amounted to sizable bills, you might be tempted to transition to flat fee billing.  After all, the typical client budget is limited, meaning automated billing at a flat rate for each individual practice area has understandable appeal.  Indeed, if you were to keep your flat fee at an affordable level, it would be that much easier to onboard new clients and continue to expand your roster as time progresses simply because prospective clients hesitate to commit to hourly billing that has the potential to spiral out of control.

An added benefit of flat fee billing is the fact that provides one simple payment upfront.  This is value-oriented pricing in accordance with the value of the legal service as opposed to the amount of time it consumes.  Though you might end up investing more time in a case billed at a flat fee for less money, it might be worth it simply because other cases billed at flat rates will chew up comparably less time, ultimately offsetting the time investment imbalance.

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