Billable hours vs. flat fees

Which billing method is better for you?

Professional services are commonly billed by the hour, but a flat fee arrangement is also in practice. When you visit your GP, you are usually charged a consultation fee, regardless of the actual time you spend with the doctor. Theoretically, the longer the consultation, the better value it is for you.  Academic editors charge by the word, an arrangement that shares the risk between editor and student. An hourly rate could be costly for a poorly written thesis. A flat fee by contrast could wind up paying the editor a very miserly hourly rate, if the thesis needs a lot of work, or costing the student an excessive amount per billable hour if it is well written and quick to edit. What is the best way to charge for legal advice? It depends on the context. US corporate attorney William Woodford feels very strongly about what he sees as antiquated fee structures such as billable hours. His approach would not necessarily be appropriate in every circumstance here, but he argues a compelling case. 

Billable hours

“I despise the billable hour,” says William Woodford, a former partner at leading intellectual property (IP) firm Fish & Richardson, “because it taints the relationship with the client.” Woodford has now left the big law firm he worked at for over 18 years to create his own niche outfit focused on IP litigation, Avantech Law. He is determined to work differently. “I am interested in anything that takes down the status quo,” he adds.

How can lawyers work differently? There are three main areas where change can be effected: 

• Dumping the billable hour 
• Making more use and better use of technology 
• Operating with lower overheads

Moving beyond the time-based legal economy

Woodford explains that the billable hour just “doesn’t resonate” with his client base of entrepreneurial companies. Many are tech-focused businesses and the idea that a piece of legal advice could cost them “$1,000 or maybe $10,000, but the lawyer doesn’t really know which one… sits very uncomfortably with them.” Woodford notes, “No other industry does this.” So how can things be done differently? 

Woodford moved away from hourly billing at his firm Avantech in the following way: 

• He developed fixed prices for many of his services. His website states: “Don’t let unpredictable legal fees stop you from taking the first step to protecting your innovation. No matter what your financial goals, we want to help.” 
• He also offers subscription fees, along with more regular contingent fees and support for litigation finance. 
• He believes that creating fixed fees is not difficult for lawyers to do, as “All law firms have a record of what everyone has done every six minutes, along with great descriptions.” So they should know how long a particular activity takes, on average.

Collection of billing data 

“No other business has this much data about its own products, but which is never used to change how fees are structured,” says Woodford. Law firms are meticulous about collecting billing data. Yet if you need help, “law firms still have a problem saying what something will cost, even though they have the data.” The hourly rate is also subject to regular increases. Because law firms are selling time, the client just keeps getting bigger bills as the hourly rates tick upwards, even if the legal output remains the same and may have been performed a hundred times before in the same way for that client. Ultimately legal advice becomes unaffordable to all but the largest companies. Many companies are excluded because of a business model and culture that is self-perpetuating. 

Legal technology 

Woodford notes that the central problem with large law firms, at least as he sees it, is that they bought their tech infrastructure many years ago, are now totally dependent upon it, and are reluctant to change it, even though it needs a complete overhaul. “Law firms are scared to move away from the legacy tech that they have,” he adds. Old tech is very hard to adapt to new needs. “If you want to keep your profit margin then you need to invest in tech. Then you can focus on high-level tasks. Law firms should focus on where tech cannot help,” he says. (Use tech to soak up the process work, then use all that experience and know-how you’ve gained over many years to really add value.)

New business model

In the wake of the global pandemic, Woodford explains that he has cut away the high leverage, the big office, the costly support services, and now works with very low overheads. He also works in close collaboration with other lawyers around the country who are either taking a similar approach or are still in big law. Either way, he doesn’t carry the costs. 

Woodford’s client base supports how he works because they are businesses at a growth stage, run by their founders, and they appreciate working with someone  who is also entrepreneurial. This approach may be less appropriate or relevant to clients who are large, established companies.

Fixed price services at SD Law

In the areas of practice where SD Law operates, billing by the hour is still the norm in South Africa. However, some law firms, including ours, are moving to flat fees for certain services that we perform for clients on a regular basis. The following are examples of our flat fee structure:

• Uncontested divorce – R 15 000
• Mediated divorce – R 25 000 – R 50 000
• Uncontested eviction – R 22 000
• Contested eviction – R 35 000 – R 65 000
• On-consumption liquor licence – R 20 000
• Off-consumption liquor licence – R 20 000
• Event liquor licence – R 5000

Fair and transparent pricing

At SD Law, we will make sure you understand the service you require and the likely cost, before we commence work on your case. While some services, like a contested divorce, can be hard to estimate in advance because it is impossible to know how long a court case will last, we do our best to indicate the likely time an activity will take and what it will cost you. As Woodford says, we have the data. Our vast experience of working with clients means that we have almost certainly handled a similar case in the past. If a case drags on, we will give you regular updates on time spent and we will bill you at intervals. We don’t believe in surprises.

Whatever your legal issue, contact attorney Simon Dippenaar at SD Law on 086 099 5146 or email sdippenaar@sdlaw.co.za. SD Law is in Cape Town, Johannesburg and Durban.

Further reading:

• Cost of divorce
• The cost of getting divorced in South Africa
• Average retainer fee for a divorce lawyer

SD Law

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