Paying by the Hour vs. Paying a Fixed (or Flat) Fee
Let me see if I can help you make a smart decision when it comes to hiring a divorce lawyer.
Sometimes it’s difficult to know how to identify a good deal in a divorce lawyer because you have no experience in shopping for and paying for divorce lawyer services.
So let’s liken the process of shopping for a good value in legal services to something you’re more familiar with.
This is a good comparison.
Think of your lifestyle as your car. A car you’ve had a long time. It’s dependable. It makes you feel happy and secure. As a result, you take good care of your car.
But then something unexpected happens to your car. A problem arises that you didn’t expect, that you don’t fully understand, and that places the future of your car in question. Is it a matter of a simple and relatively inexpensive fix? Or is the problem or are the problem so complex and/or mysterious as to be very expensive just to analyze, let alone remedy?
What kind of mechanic you get, and the way you pay the mechanic, will depend upon your financial circumstances.
Paying by the hour has its advantages, and its disadvantages. When I pay by the hour I don’t know how much I’ll end up paying or how long I’ll be paying. If I’m dealing with somebody I don’t know, it’s hard, if not impossible, to know whether the person charging me by the hour is honest and fair.
If you’re like me, I usually pay my mechanics (people who have treated me well in whom I trust) by the hour because I know they won’t do any unnecessary work or try to stick me with any unnecessary charges. They’ll charge me for as many hours as it actually takes them to fix my problem. They’ll charge the only for the parts I really need. I realize that sometimes they may end up doing work that doesn’t solve the problem immediately because it helps them narrow down what the problem is. I understand that sometimes I might have to pay for the same part twice if the first part ordered doesn’t perform as expected.
Paying a flat fee may be you preference if you’ve saved up a rainy day fund, you may be inclined to ask the mechanic to quote you a flat fee or a fixed fee on the cost of repairs. You might ask for a flat fee so that you don’t have to worry about handing the mechanic a blank check to charge you by the hour or by the part. You like knowing in advance how much it’s going to cost, even if it going to cost a lot. You may even try to entice your mechanic into accepting a flat fee by explaining that the mechanic will receive that fee regardless of how long or how short a time it takes to perform the repairs. In these regards, a flat fee can be very appealing to both you and to your mechanic. But flat fees can be risky. So agreeing upon a flat fee between you and your mechanic is not an exact science, and will require to some extent a leap of faith on the part of both you and your mechanic. The mechanic does not know exactly what’s needed, and by agreeing to a fixed fee, could end up losing money on this deal if the problem is worse than he imagined, thus requiring far more work and/or materials than originally estimated. Then again, the problem may turn out to be much simpler than originally anticipated, resulting in that flat fee you thought was so advantageous obligating you to pay much more than you would have had you paid by the hour and the part. Quite often a flat fee is slightly higher than what it would cost if you paid by the hour because your mechanic wants to reduce as much as possible the risk of working at a loss.
Fair enough? You with me to this point?
I stopped billing clients by the hour back in 2013. That was the year when a client came to me telling me that he was happy with my work in that he felt he was getting a fair deal, but that he had a difficult time paying my fees every month because he never knew how much or how little they would be. Although my client’s struggle was obvious once he brought this to my attention, it had never occurred to me. Almost immediately I switched from billing by the hour to building on a flat fee basis. I now Bill $500 a week or $2000 a month, as the client prefers. I came to this number by taking the average cost of every divorce I never handled (both the contested and the uncontested) and dividing that by the average period of time divorces take. This way the client usually ends up paying the same amount of money the client would’ve paid me had the client been built by the hour. And while there are times when some clients pay more than they would have paid by the hour and some clients pay less than they would have paid by the hour, it evens out.
But some clients have an extraordinarily difficult time understanding this concept. “What if you don’t do $500 worth of work in a given week?” they ask. I explained that by comparing my flat fee system to the natural gas company’s flat fee “budget pay” program. Rather than having you pay $5 per month in the summer and $200 per month in the winter, your natural gas company has you pay $103 every month per year instead. This allows you to budget for your gas payments predictably throughout the year.
Unlike the natural gas company, however, I go one better. I charge $500 a week, but subject each weekly payment to a satisfaction or your money back, no questions asked, guarantee. The way it works? You pay me $500 in advance for the week ahead. After that week I come to you for the second week’s advance payment, but before I get paid for week two, I asked you if you are satisfied with the previous week’s services. If you say you want, the only question I ask you is how much of a refund due you want? And you may have up to all of the $500 you paid refunded. No questions asked. Even if you were more than satisfied with the work, you can claim you weren’t satisfied get all your money back. The reasons I do this, and the reasons I can do this are no secret. To reduce your fear and your risk as a client and to help earn your trust, I offer my satisfaction or your money back, no questions asked guarantee. This should make you confident that I’ll work hard to satisfy you, because if I don’t I won’t get paid for the services I performed. But this isn’t a one sided benefit. Because clients who know I do good work, but demand refunds anyway won’t have me as their lawyer much longer, which means they’ll have to turn to one of those despicable lawyers they had hoped to avoid. So this arrangement keeps the lawyer humble and honest, and the client humble and honest too.
And breaking down payments to your lawyer in weekly installments that are fully refundable each week, rather than requiring a hefty retainer up front, ensures that a client never overpays his or her lawyer. It also allows the client to pay as he or she goes. If the case ends up settling in just a few months, the client only pays for the work that was needed in that few months. If the case takes longer, the client understands from the beginning what it’s going to cost week to week until the trial ends.
Short of doing top-flight work for free, I really couldn’t think of anything more I could possibly do to make the client happier.
But still, some clients, being extremely skeptical and suspicious of lawyers (which I don’t blame them for being), think there’s a catch. There isn’t, but if they aren’t convinced by then, there’s really no convincing them ever.
And so for those clients, I started offering not merely a flat fee, but a lump sum flat fee. I understand the appeal of a lump sum flat fee to a client. One and done. Avoiding the pain of having to pay your lawyer every week or every month.
But if a client is going to request a lump sum flat fee, then the client has to understand that that flat fee has to cover all likely contingencies. I can’t remain a viable business if you ask me to accept $2,000 for a case that may end up lasting a year and a half before going to trial. Likewise, I understand your reluctance to pay me $36,000 or more only to have the case settle in three or four months of intense negotiation. So please understand if you’re going to insist upon paying a lump sum flat fee, that flat fee has to cover every possible contingency.
So if you insist on making one and only one lump sum payment, the average lump sum fee (the average, mind you—meaning it could be slightly less, could be slightly more) is $25,000.
If you want to pay a lump sum without having to prepare for trial because you believe your case will settle and never go to trial, the average lump sum fee is $10,000. If, to your surprise, you don’t settle, and want me to take the case to trial for you, the trial preparation and presentation fee is, on average, an additional $20,000.
Now I don’t want to impose my own principles and values on my clients. Not everyone thinks the same way I do. Not everyone thinks about money the same way I do. Every case is both unique and shares many common elements. My pricing practices seek to balance as much customization as possible with the efficiency and functionality of a standardized system.
My pricing takes into account my wants and needs, as well as the wants and needs clients use to guide their buying decisions. Understand that if you find my pricing to be outrageous, too complex or even too simple, that probably means you have never been in the market for my kind of services before. Regardless, I trust that this article has been transparent and that it has helped you understand the analysis and purposes behind my pricing, specifically my flat fee pricing.
If you find my approach to divorce and family law, and to the way I value and price legal services for a client, I invite you to meet with me to discuss what I can do for you within your budget.