Fixed Fees: A Must Have When You Hire a Law Firm

By Startup Issues

Lawyers and their law firms are increasingly making fixed fee or “project pricing” available to their clients. This is especially true for startup company clients, as they typically have well-defined legal issues and needs. There are 3 main reasons why your startup company should have a fixed fee arrangement with your law firm instead of being charged by the hour:

1. Ability to Predict (and Budget) Your Legal Expenses with Greater Accuracy. There are a lot of unknowns when launching a startup and fixed fee pricing eliminates the uncertainty of how much your startup legal expenses will be. No surprise bills mean a more accurate cash flow forecast.

2. Paying for Product Rather than Time. One of the main shortfalls of the “billable hour” is that it makes clients feel like they are paying for a lawyer’s time instead of a lawyer’s work product. Also, the billable hour makes clients very suspicious about their lawyer “padding” the bill.I like fixed free pricing because it allows me to represent a client without having to worry about or defend my actions, as the client focuses on the product rather than the clock. For example, when I call a client under a fixed fee arrangement, they know I am calling for a pretty good reason since I am not getting paid any extra for it.A recent real-world example is that a company with 2 partners hired me to draft a joint venture agreement. When I showed them the draft, one partner accused me of padding the legal bill because I included a bunch of “excess language” in the agreement. This partner did not remember our fixed fee arrangement. (Theoretically, any “excess language” I’m drafting for them hurts my bottom line.) I reminded this particular partner of our billing arrangement and we moved forward.

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3. You won’t stop short. When the meter starts to run high, clients tend to stop using their lawyer. Of course, the client needs to manage cash flow. But sometimes a client can disadvantage their company by not going all the way with their legal representation. (I am, of course, assuming the lawyer is not padding the bill.)Imagine you are building a bridge but stop the process after 75% completion. Well, you theoretically spent 75% of the costs to get you across the body of water. Now you are out those costs, but still can’t get across.Thus, there are situations when you will not receive a dollar for dollar benefit unless you complete your project. Legal representation is one of those situations, but it may not be as obvious as if you were building a bridge. A fixed fee arrangement ensures that you don’t fall into that trap.


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