Small law firms are witnessing an increase in requests for fixed fees, as well as greater profitability – and the future looks bright for charging in such a fashion, too.
Back in March 2021 Smokeball legal practice management software released the State of Small Law Survey results, for which we interviewed hundreds small law firms across Australia to uncover some of the most important issues facing the legal profession.
The results, show that there is a substantial increase in clients asking for their matters to be done by way of fixed fees, and that the outcomes for law firms are more profitable. This movement towards fixed pricing isn’t necessarily segmented to particular practice areas and niche boutiques, either – respondents are seeing fixed fees in practice areas across the board, from family law to litigation, conveyancing to wills and estate planning. Clients are demanding bill certainty and are more aware of the potential for cost blow outs.
A rise in requests and profits
The findings show that nearly one in two (43 per cent) of Australian small law firms and conveyancers have seen an increase in requests for fixed-fee pricing in the last 12 months, and across most practice areas.
New South Wales, Victoria and South Australia have all seen a 50 per cent increase in requests, with Queensland the only state to record a smaller increase of 28 per cent.
Market forces and a need for bill certainty are noted as the leading reasons for the fixed-fee trend but firms also said they are seeing a rising unwillingness to pay large legal fees, even for work that has been completed, which is causing firms to ask for a fixed fee before work commences.
This said, changing the billing model of a firm – or at least the model utilised in certain areas of the business – to incorporate fixed fees has been profitable for nearly half (43 per cent) of small law firms in Australia.
Fixed-fee billing is most profitable, the results outlined, in NSW (47 per cent) and Queensland (45 per cent), followed by Victoria (35 per cent) and South Australia (25 per cent).
Not all good news
However, the survey also uncovered that movement towards fixed pricing has not been positive for all small law firms around Australia.
No South Australian firm has found it unprofitable, but 29 per cent of Victorian firms do, as do 24 per cent of firms in NSW and 18 per cent of Queensland-based firms. All up, one-quarter (25 per cent) of firms surveyed said fixed pricing is unprofitable, while 15 per cent of firms across the country said it makes no difference to their bottom line.
These respondents find that matters always take more time than you can bill in a fixed fee arrangement and clients who want fixed fee bills tend to shop around for cheaper rates that may not reflect the work done.
Know your data
When it comes to ensuring profitability with fixed-fee pricing, Brisbane Family Law Centre Director Clarissa Rayward said that knowing the data is critical.
“Moving to a fixed fee business is one of the core reasons I enjoy what I do. Since tossing the timesheets five years ago we have a more client-centric business with no fee arguments, no debtors, cash flow predictability, and a business that rewards efficiency. We know how much it can cost to work matters but also how much income we need to run the business every day and that is where we start from to build our fixed fees.”
“The most important thing to understand with fixed fee billing is that one price doesn’t fit all so you need to build a scope for your fixed fee prices that can be moved up or down depending on the client’s needs, complexity, timing and where the matter may go.”
This, Clarissa surmised, gives the clients choice and a more collaborative approach to the work.
Smokeball’s CRO Jane Oxley agreed, noting that having full confidence in the firm’s fixed-fee billing “means knowing how much time your matters truly take from the research and phone calls that are easy to record, to the emails and internal meetings that can be harder to record manually as they are often unscheduled, high in volume, and easily forgotten”.
“Fixed fee requests are only getting more popular so firms, especially smaller firms need to make sure it works in their favour while also responding to the market and not feel they are losing with this billing model”.
Bright-looking future for fixed fees
Looking ahead, it is evident that the trend towards fixed pricing is set to continue, with more than half of all firms surveyed (53 per cent) saying that they expect an increase in fixed fees over the next 12 months. Just 12 per cent of firms surveyed said they do not expect such a rise, and 35 per cent are unsure.