Are You Making Money on Your Flat Fees?
Flat fees serve as a great opportunity to provide more certainty and benefit to your client. They are also beneficial to you if you understand how much time, effort, and expenses go into every case. It will take a little work to know how much you put into every case, but the more you know, the better off you will be!
Below we go into value billing, determining the cost for a flat fee service, and where we can get into trouble.
Value billing is based on the value of the outcome, not the amount of work put into it. Clients are charged for a service and not the length of time that went into it. It focuses more on the outcome, and you can charge one flat fee that the client is aware of upfront.
Determining the Cost for a Flat Fee Services
Labor is the largest cost to take into account, then software costs and overhead like rent and marketing come into play. One rule of thumb is to create a general estimate based on the price of ⅓ labor, ⅓ overhead, and ⅓ profit. Unless you are paying your team a flat fee per case or a percentage basis, track your time. It is the only way to track that you’re spending money to have them work on the case.
You should also check how your profit and losses are structured and notice if you are tracking expenses to client-related items or only big buckets.
Where We Get in Trouble
- Don’t track time – Without this data, we don’t know how profitable we are. When we know what’s more profitable, we can adjust our marketing to speak more directly to that client to attract more of those types of cases and clients.
- Working flat fee cases like hourly cases – We need to re-evaluate our workflows and consider if what we are doing is necessary to move the case forward or if they are being done the way we have always done them – or if we’re doing them to show the client that we’re doing them, but they are not necessary for the result or outcome of the case.
- Not evaluating cases correctly – Flat fee cases will not provide the same profit every time, so tracking your profit margins on each case is important. As soon as you see a trend of lowering profit margins, you need to investigate the cause and, in some cases, raise your fees. It’s hard to get people to be great at consistently tracking time to each task if you don’t frequently use the time tracked to provide lessons learned and where improvements need to happen, or fees need to change.
If you want to learn more about flat fees, check out https://www.nextlevel.legal/episode/lfn091.