I need legal help, but how much do you charge? The pricing component is often the elephant in the room for consumers of legal services. At CORPlaw—a modern law firm catering to small business owners and creatives—we think it’s important to demystify this process. Our goal, transparency.
Let’s tackle the elephant in the room head on, so you can be armed with knowledge as you embark on the process of hiring your legal advocate. We’ll start by addressing some frequently asked questions and then turn to explaining some of the most common payment options available for working with law firms.
First, why do lawyers charge for their services? Can’t you just do legal work for me or my business pro bono (for free)?
Much the same way you wouldn’t ask a restaurant owner to sit in their restaurant and eat pro bono, a law firm is a business with costs and expenses that make it necessary to charge consumers for the product the law firm provides. But there are some big differences between paying for a steak at your favorite steak restaurant and purchasing legal deliverables. For instance, as you are biting into the juicy steak, enjoying the service and ambiance of great venue, you immediately see the value and feel justified in your purchase (assuming you are enjoying your meal). Often, legal deliverables take a prolonged amount of time to produce, you don’t understand how the chefs went about cooking the legal work because you aren’t a lawyer and because lawyers, unlike chefs, don’t produce juicy burgers; we produce legal strategies and deliverables that are the product of years of experience and knowledge. As a result of these differences, the average consumer has trouble seeing more value in a 20-page, 10-point font, contract that may protect you from thousands of dollars in litigation than a $100.00 night out at a fancy restaurant. Rest assured, when you are working with a skilled, trust-worthy attorney, you are paying for a service that is meant to benefit you, not harm you. So, yes, most attorneys and law firms must charge for the valuable services they provide to benefit their consumers—just like a restaurant would—or they will go out of business.
Sure, okay, but can’t the lawyer just give me the information for “free”; the knowledge is just sitting in their head after all?
Lawyers are professional problem solvers. Often times, you are paying a lawyer to think through problems with you and for you. A common question that clients have is, why can’t the lawyer just give me the information? Why is the lawyer charging me for information in their head? Pulling knowledge out of your brain doesn’t cost you anything to produce right, so it’s not fair to charge for it? While these questions are completely understandable and fair questions to ask, these questions show a fundamental misunderstanding of how lawyers work and what is required to produce legal deliverables. First, it’s not accurate to say that it doesn’t cost an attorney money to produce legal services. Law firms, like many businesses, have operating costs necessary to keep the lights on. One of those operating expenses, and usually an expensive and essential line item on the budget, includes the legal research tools necessary to keep the attorney up-to-date on important developments in the law. The law is constantly evolving and changing. Because of this process, it’s not the case that most attorneys are just pulling an answer to your legal needs out of their brain without performing any additional work. Great lawyers care about getting the answers to your question right, every time. In order to provide quality and accurate answers to client problems, attorneys must spend time reading client documents, researching updates in the law, and artfully drafting or producing legal deliverables—a costly and time consuming process. Producing legal deliverables is not an instantaneous pulling of a pre-made product off the shelf; it’s a process. Time, work, and costs go into solving your legal problems. And even if an attorney did want to give you free legal services and run their business into bankruptcy doing so, most state bar associations prohibit lawyers from providing “free” legal services without first being hired by a client.
Ok, ok. I don’t want my favorite trusted law firm going out of business, and I understand that legal services cost money to produce. I’ve heard of all these different billing options—contingency fee, flat fee, hourly—how do I understand the difference between these payment options?
It’s important to note that law firm pricing varies by jurisdiction, your specific legal matter, the experience-level of your attorneys, and a variety of other factors. Generally speaking, there are three traditional fee arrangements and various other hybrid fee arrangements. Recently, hybrid fee agreements are becoming more popular because they are better suited to clients’ needs on an individual basis. Here’s what you need to know about the traditional fee arrangements and two popular hybrid fee agreements.
1. Flat Fee Billing
Flat fee billing usually means the client is charged one up front set fee in exchange for a limited legal deliverable. Some clients see a flat fee model as a preferred payment method because there are no hidden costs or unexpected charges. There are many instances where a flat fee arrangement is an ideal solution for both the client and the attorney. But you may be wondering, how do attorneys set their price? A lot goes into setting prices on flat fee services, including considering the time and costs involved in producing a specific legal deliverable. In order to set a flat fee price, a law firm uses their experience to forecast the cost, time, and work required for the firm to produce the legal deliverable. Where there are no surprises and the legal deliverable consistently takes about the same amount of time to produce, this is a good option. Where the legal deliverable presents a range, say an estimated 10 to 35 hours to produce, a flat fee option is a gamble for both you and your attorney. If the deliverable takes more time than expected to produce, the client wins in the roll of the dice and the law firm may take a financial hit in producing a flat fee deliverable that ends up costing the law firm more money to produce than the price paid by the client. If the opposite is true, and the law firm finalizes the deliverable faster than expected, than the client may end up paying more than they would have paid in an hourly relationship.
2. Hourly fee
Historically, the hourly model is the most traditional model used by law firms to charge for their services. The client is charged an hourly fee multiplied by the number of hours spent working on the client’s matter. Traditional law firm billing is done in one tenth of an hour increments (a time entry of “.1” is made for every 6 minutes spent working on a client matter). Clients then usually receive a monthly bill summarizing a law firms time entries time the hourly rate with the total bill. If you are concerned about how much your matter is going to cost, you may ask your law firm for an estimate of the costs beforehand. Note that most firms include time entries on their bills for client communication, like phone calls, and reviewing emails. Why do I have to pay to talk to my lawyer and for them to do things like read emails? As your advocate, your lawyer is paying special attention to communications-related to your case, so that you don’t have to. When lawyers talk about your matter, read emails, or otherwise put time into solving your legal problem, they are expending a finite resource—time—to help you. In order to craft and analyze the legal argument best suited for your case, your lawyer must spend time on your file. Spending time, taking your legal issues off of your plate, so you don’t have to worry about them is one of the most important ways your lawyer can provide value to you.
3. Retainer Fee
A retainer fee often accompanies an hourly arrangement. Retainer fees generally refer to an advance on legal fees held in trust prior to being earned by a law firm. The lawyer bills for their time, then applies the invoice amount against the amount available in the trust account. It’s important to note that most retainer accounts are expected to be replenished. That is, when the amount in the retainer falls below a certain amount, you will need to restore the retainer to a specified amount before the law firm will continue working on your matters. Also, some law firms use what is referred to as an “evergreen” retainer. Evergreen retainers may permit your attorney to automatically replenish your retainer balance, when it falls below a certain threshold, by using a credit card or other authorization that the law firm has on file for your account.
4. Contingency Fee
In certain types of lawsuits, you and your lawyer may agree on a contingency fee arrangement. A contingency fee means that your law firm agrees to make an up-front investment in your case, without any payment from you, and, in exchange for your law firm making that investment in your case, the client pays a percentage of the overall award recovered by the attorney to the attorney for their legal services. Under most state bar rules, you and your lawyer must enter into a written agreement stating the portion that the lawyer will receive before your lawyer begins working on the case. Usually, it is a fixed percentage of the recovery, often in the ballpark of 30%.
5. Hybrid Contingency-Retainer Agreements
A hybrid contingency-retainer is becoming more and more popular. This agreement is an attractive risk-sharing solution that allows the firm to cover some of their costs while providing flexibility to cost-conscious clients. This type of agreement is often a combination of the hourly and contingency arrangements. As the client, you may be charged a retainer fee up front, with an additional fee due from any money that you recover. However, the additional fee will be less than that due in a regular contingency fee case. Think of it as a down payment on a car. If you put up more money up front, you will have to give up less money later.
6. Hybrid-Fixed Fee
Some client issues may involve a blend of fixed projects and other less predictable tasks. For example, a project may not involve litigation but may require your attorney to attend meetings that may run many hours. This hybrid fee calls for an hourly fee for time spent on matters such as the meetings, which are difficult to predict, and a fixed fee for any standard task.
Hybrid fees are fees that firms negotiate with their clients and are based on each client’s unique situation. It is important to speak with your attorney regarding fees in the early stages of your case especially if you are seeking a flexible billing arrangement.
Whether you are working with CORPlaw or another law firm, we hope that this information will be helpful to you in structuring successful relationships with your legal advisors. We encourage you to ask questions, commend you on educating yourself on the process of engaging a legal advocate, and wish you much continued success. To chat with our team, click here or give us a call: 1 (833) 545-7526.
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About CORPlaw. Headquartered in Miami, Florida, CORPlaw is a boutique business law firm that helps modern entrepreneurs grow and protect their businesses. Founded in 2017 by award-winning attorney Mrs. Kristen A. Corpion, Esq., this minority and female-owned law firm has advised countless small businesses owners, startups, and creatives throughout the state of Florida, nationally, and abroad. The CORPlaw team continues to grow and build a reputation of professional excellence and client satisfaction. Contact CORPlaw today at 1 (833) 545-7526, info@corplaw.us, or on our website (www.corplaw.us). CORPlaw is a full-service firm that works with modern entrepreneurs as a full-service provider of legal services. From incorporation, to contracts, to trademarks, to business-related lawsuits, as our clients build their reality, CORPlaw is there to protect it.