Last month’s column on flat fee billing sparked a passionate debate. It also raised a lot of questions and had readers asking me for more details on exactly how I set my fees. So I am diving back int to he fray to go into more detail.

First and foremost, let me say that, while I am not a fan of hourly billing I also recognize that flat fee (or value-based) billing is not for everyone. Some people cannot get past the idea that if I provide a service that only takes me four hours and I bill in dollars what someone else might bill six hours for, I am “cheating” my client out of two hours. I prefer to think that I am being rewarded for being efficient, that my hourly rate would have increased along with my efficiency anyway, and that my client is paying for my level of service, not for a set number of hours of my time. But I get it. Like any system, flat-fee billing can be abused, made unethical and unreasonable. Here is how I actually set my fees, and how I do my best to avoid ethical complications with value-based billing.

I start with the Florida Bar Rules of Professional Conduct, and I suggest that you look at your state and local bar rules as well. Florida Rule of Professional Conduct 4-1.5 lists the following factors to be considered for determining whether your fee is reasonable:

1. the time and labor required, the novelty, complexity, and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
2. the likelihood that the acceptance of the particular employment will preclude other employment by the lawyer;
3. the fee, or rate of fee, customarily charged in the locality for legal services of a comparable or similar nature;
4. the significance of, or amount involved in, the subject matter of the representation, the responsibility involved in the representation, and the results obtained;
5. the time limitations imposed by the client or by the circumstances and, as between attorney and client, any additional or special time demands or requests of the attorney by the client;
6. the nature and length of the professional relationship with the client;
7. the experience, reputation, diligence, and ability of the lawyer or lawyers performing the service and the skill, expertise, or efficiency of effort reflected in the actual providing of such services; and
8. whether the fee is fixed or contingent, and, if fixed as to amount or rate, then whether the client’s ability to pay rested to any significant degree on the outcome of the representation.

In my opinion, this is pretty much a road map for setting a flat fee for every matter that comes my way. First, I ask myself how much time and attention this will take, whether I have the skills to undertake the matter (and if not, what it will take to get me up to speed), and how difficult it will be for me to tackle the work. If I feel that I can do the work, that I can give the client the required time and attention, then I start with a baseline of what I think I would bill for the work if it was billing by the hour.

Next, I ask whether this matter is going to be ongoing month-to-month project or whether it is an isolated one-off project. For ongoing, months-long projects, I like to offer my clients the option of putting me on a monthly retainer for the duration of the project. If it is a one-off project, I break down the tasks of the project and determine what it will take for me to get them done. I have to make an educated guess as to how much time and attention the project will require. If the project will require most of my time and attention for a day/days/weeks/ a month, then I know I will be unable to accept other work, and I have to factor that into my fee.

The rate customarily charged for the same service in your geographic area is a factor you have to consider. That means that you need to be aware of what someone billing hourly for the same service is likely to charge. If I have done a lot of similar work for previous clients, I know I can charge what I have charged others in the past for the same work. If not, I ask other lawyers I know well enough to get a candid response to share how long they think this would take them and what their hourly rate would be for this particular service. That helps me to know if I am within bar guidelines. That is, is the total fee I am charging for the service reasonable compared to what others charge in my market area? I do not have to base my fees on what others charge, but it helps to know whether my original analysis is even in the same ballpark as my competitors.

Since I mostly do transactional work for small business, the significance of the subject matter to the client is generally a question of what impact my work will have on the client’s business. However, this rule permits an attorney to offer a lower fee for litigation and a “success” fee if we are able to reach an early settlement or win in litigation – a higher fee for obtaining the desired result. More on that below.

Time limitations imposed by the client are the next factor. Basically, you can charge more for getting the work done more quickly if the client needs you to rush; or if the client needs you to drop everything to clean up a mess; or if the client just needs a lot of hand-holding. In any of those cases, you will be spending more time than you originally estimated on the project. Factor that in and charge appropriately.

Next, what is your history with this client?  If you already have a relationship with the client, you know what to expect. Do they have a history of paying their bill on time? That saves you time and money in collections. Do they email you with a million little questions every time you do any work for them? Factor that in. Do you have trouble getting hold of them when you need something? Factor that in too.

The next factor is you. Where are you in your career? Just starting out? You probably can’t charge what I can after six years of practice, and our colleagues with twenty years under their belts can charge more than we can. Your experience, reputation and skill have to be built, but you have to start somewhere. Be realistic about the value of your experience as well as the value of your time.

The final factor is whether the client’s ability to pay rests on the outcome of the representation. The thought here is that fixed fee representation in litigation is often based on the success fee model in certain types of litigation, where you can charge  a lower flat fee for each stage of representation, but a higher fee (a “success” fee) if you achieve a desired result. For example, if I undertake a litigation, I generally ask for $250-500 to send a demand letter, another $1000-1500 to file a complaint, and another $800-$1500 for each motion I file and argue. If we go to mediation or to trial, I charge a per diem for preparation and attendance.  I could also charge a success fee for settling the matter (or winning a judgment) at or above a certain dollar amount.

Note that I do not charge success fees because I don’t handle the kind of claims that are conducive to charging a success fee, such as personal injury or medical malpractice claims. I do not feel that the breach of contract and intellectual property litigation I sometimes handle lend themselves to success fees. I need my clients to make a business decision when it comes to settling or proceeding with litigation, without my fees being that big of an issue. It should also be noted that, if you could not take the matter on contingency, such as a divorce matter, then you should never take a success fee either.

So there you have it: a method for determining a flat fee that is fair to your client and ethical in practice, straight from the bar rules. I know that there are other factors that other attorneys consider, but this really is how I analyze my fees on a case-by-case basis.