It’s no secret that clients seeking more predictable fees are driving a revolution away from the billable-hours standard. While the shift has caused concerns that other methods, known collectively as alternative fee arrangements (AFAs), cut into revenue, using new payment methods strategically could enhance your ability to build trust and long-term relationships.
Alternatives to hourly billing aren’t new. One tried-and-true example is contingency fees designating a percentage of the award in cases seeking damages. What’s changed is that AFAs have become increasingly prevalent in areas such as business law. According to Altman Weil’s “2016 Law Firms in Transition” survey, 96.8% of firms now use non-hourly billing at least part of the time.
The Altman Weil survey suggests that an active approach to AFAs — offering clients alternatives at the outset of a relationship — can boost the bottom line. In fact, of firms that responded, 83.6% using AFAs proactively say such methods are as profitable as, or more profitable than, billable hours — compared with 59.4% of firms overall. Yet despite these compelling numbers, 72.2% of survey-responding firms say they still offer AFAs only in response to client requests. Would being more proactive be an advantage for your firm?
Offering Multiple Options
One advantage of AFAs is their flexibility: You can tailor them to your needs and those of your clients. Examples range from contingency fees and flat fees covering all or part of your relationship to fees for individual tasks you perform. Some firms may even offer a retrospective fee, meaning the firm and the client determine the fee after services have been performed, based on predetermined criteria. Even when you stick with billable hours, you might consider modifying the arrangement for greater client visibility. For example, some firms offer “fee collars,” which identify the upper and lower limits beyond which fees can’t go. Others may combine hourly and fixed fees.
Billing of the Future
Regardless of which methods you choose for your own firm, it looks like AFAs are here to stay. In fact, 95.4% of the firms that responded to the 2016 Altman Weil survey have managing partners and chairs who view greater price competition as a permanent trend moving forward, and 78.3% say AFAs will be a permanent part of the landscape.3 With that in mind, firms that get ahead of the curve with creative pricing options may give themselves a competitive edge as they enhance client service.
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