Flat-fee billing: a valuable option for solos, small firms

By Correy E. Stephenson

The Daily Record Newswire

Solos and small firms looking for ways to attract new customers and stabilize their income should consider an increasingly popular option: portfolio billing.

Portfolio billing is an arrangement in which a law firm takes on all the legal work - or a specific subset of legal work, like all employment litigation, for example - for a client at a flat fee, explained Larry Bodine, owner of www.LawMarketing.com and a business development advisor at Chicago-based Larry Bodine Marketing.

The arrangement offers clients the benefit of pre-determined legal costs and law firms the assurance of predictable income.

Instead of doing more work to increase the number of billable hours on a case, portfolio billing encourages lawyers to resolve matters more efficiently - something clients can appreciate, said Allison Shields, who blogs at Legal Ease Blog about law firm marketing and practice management and Legal Ease Consulting in Port Jefferson, N.Y.

Patrick Lamb, a partner at the nine-member Valorem Law Firm in Chicago, started the firm in January 2008 with an alternative billing philosophy, and he estimated that roughly 30 percent of the firm's work is done as part of a portfolio billing agreement.

''It smoothes out bumps and provides predictable revenue flow, so you can meet payroll, pay rent, etc. And it allows you to offer value to clients,'' Lamb said.

Following are some of the issues to consider when crafting a portfolio billing agreement:

Define the scope

Lamb suggested that the agreement include a provision that the workload be ''substantially similar to prior experience.'' For example, if a client typically has 10 cases annually and one year takes on eight or 12, that would be covered under the agreement. But if there were an aberrational year - like the litigation year Toyota is having - the law firm would have some protection.

Consider resources

When evaluating the scope of the work to be performed, lawyers need to determine whether they have the resources to handle the agreement, Shields said.

Even though it might be a great source of business, ask yourself: ''Do I have enough resources to handle this work effectively - and handle another client?'' she advised.

Especially in the current economy, lawyers don't want to rely on a single client as the only source of revenue, Shields said.

''Be sure to consider: How am I going to staff this? How much time will I need to devote to client communication? Am I prepared for this?'' she added.

Historical costs

When trying to arrive at a dollar amount, the client's historical legal costs are essential, Bodine said, while Lamb suggested getting access to prior billing records for each new client.

Lawyers should analyze the size of the former firm, the work it was doing and when in the course of the case it was resolving matters - and then look for opportunities to shorten the cycle. For clients who do not have prior data, the task becomes more challenging.

''If you are starting from scratch, you have to do a very detailed project management outline of how you would manage the cases, find the synergies between cases - where work in one case would be applicable to another - and then come up with some estimate,'' Lamb said.

Time period

A portfolio billing agreement can last for any time period, but the typical length is one year.

Particularly in new arrangements, it might be beneficial for both sides to limit the agreement to one year with the option to review and adjust, Shields suggested.

And it may be more beneficial to a client to use something other than the calendar year, like the company's fiscal year or some other time period, especially if the client operates a seasonal business, she said.

Most lawyers also structure the arrangement to provide predictable revenue flow over the life the agreement, Lamb said.

Trust and communication

''Ideally, a lawyer would want to have some kind of pre-existing relationship with the client,'' Shields said.

Not only would that help with pricing the agreement, but it would presumably bring with it the higher level of trust and communication that helps to navigate unanticipated events.

Portfolio billing by its nature involves continuing work, so lawyers should look for local businesses or franchises and closely held corporations to make their sales pitch, Bodine said.

But while corporate clients are most typical in portfolio billing arrangements, Lamb said it can work in every practice area.

''Real estate transactions, different types of litigation, basic contract work - as long as the work is relatively consistent, it can work,'' he said.

Lamb acknowledged that lawyers often hesitate to try portfolio billing because of concerns that one of the cases or issues in the portfolio might become extremely complicated, making the deal unprofitable.

But while an attorney may have an unusual case, ''there will be other cases that require a much smaller amount of work,'' Lamb said, allowing a lawyer to balance out the work flow over a period of time. Lawyers should remember that part of handling portfolio fee arrangements is ''accepting the risk to create efficiencies so that the profit margin is ... acceptable,'' he added. ''The risks are spread over many cases.''

Shields recommended that lawyers take on a small fixed fee arrangement for a client, handling three cases for a set amount, for example.

''That will help price out individual matters and provide information about where potential problems can arise,'' she said.

Published: Thu, Sep 9, 2010

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