Fixed Price Legal Services for Houston Small Businesses
Hire the Business Lawyer You Need And Know What It Will Cost
Have you ever found yourself in need of legal work for your business but uncomfortable with how large your final legal bill might be? Have you ever found yourself wondering, how much will it cost if I hire a lawyer to do [you fill in the blank]? Tired of paying extra legal fees and un-budgeted additional lawyer hours? Here’s a bit of my journey with those questions and my fixed price fee solution.
Traditional Billing Model
I started my legal career with the corporate group in a large multinational law firm in Houston, Texas. I was instructed to keep track of the time I spent working on a particular client’s matter so that I could bill my time to that client. Billing the client meant charging the time spent on the matter multiplied by the billable rate for that client. In the many subsequent years, that’s how I’ve billed my clients and that’s also how the vast majority of law firms and lawyers bill their clients.
Is There a Better Way?
But from the client’s perspective, are they getting their expected value from the legal service compared to what they are paying, and is this the best pricing model for them? Throughout my legal career, I’ve thought about this question, and slowly came to the conclusion that while some small business owners may be fine with this model, others don’t like hiring an attorney because of the uncertain nature of the hourly-billing model.
Many small business owners and entrepreneurs I know want to establish how much the legal work is going to cost them, similar to other purchase decisions they make.
On the other side of the transaction, many lawyers prefer not to fix a price for the work they’ve been engaged to perform because they prefer not to take the risk of spending an uncertain amount of time and resources. Since it is preferable to bill by the hour as the matter progresses, their response to cost estimates then become:
- “it depends” or
- “it varies” or
- “I can’t give you an exact number”
These attorneys are willing to only offer an estimate, but it’s not a fixed or guaranteed cost. So, the total cost of the legal matter can end up essentially as an unknown.
The small business owner or entrepreneur can’t set a budget without a fixed cost and they can’t evaluate if the benefits to be received from the legal work are worth the expense.
This billable-rate model can lead to unpleasant surprises for the small business owner, as there is no sense of a maximum amount or a budget for the work to be performed. Other small business owners don’t like the practice of being charged in 10 or 15-minute increments for phone calls, emails, or other interactions.
I was one of those attorneys and would gladly give estimates or quotes; but later whatever time I spent was billed and the overall legal cost wasn’t tethered to my quote. I valued the trust my clients placed in me, and I certainly tracked my time fairly and I was as efficient as possible in producing quality work, but over time, I’ve become convinced there must be a better way! I’ve read articles about, thought about, and experimented with different billing models in an effort to provide my clients a better method.
My Mentor: A Better Model
I was fortunate to be introduced to a friend of a colleague, who became my mentor for a time, and through that relationship was encouraged to implement a fixed-price model. So, I did. I was already an experienced transactional attorney, working mostly with small business owners, startups and entrepreneurs. I understood many of the issues and challenges they faced and understood the underlying drivers and economics of their businesses.
Being able to give my clients the ability to budget legal costs for a project and also to give them the ability to evaluate potential value received from accomplishing a business deal, I provided my clients with important information and more value.
Fixed Pricing for Results
So now, I continue to offer fixed pricing as a regular part of my business model. Determining the fixed price for legal services requires:Frank and open discussions with my client about the project or engagementMy client’s willingness to share information with meMe devoting more time to thinking about my client’s project in advanceUnderstanding my client’s issueAssessing my client’s business and objectivesUnderstanding and assessing the counter-party’s effects in the transaction
The ultimate goal is to accomplish my client’s objectives, while ensuring that both my client and I are satisfied with the engagement.
The first step in determining a fixed price is an initial meeting which is possible by phone, video or in-person. In this discussion we cover:
- my client’s business
- my client’s overall objectives for the transaction
- possible deal terms or positioning
- the time schedule for the transaction
- the relative importance of the transaction for my client
At the end of the meeting, it’s typical for me to ask my client for pertinent documentation, such as a term sheet, emails, or existing agreements. These discussions and documents are always kept strictly confidential.
Scope – Price – Assumptions
After reviewing the documents and incorporating the information, I may have additional questions, but then I prepare a draft proposal.
The proposal includes three main sections:
1. the scope
2. a fixed price
3. the underlying assumptions of the scope and of the fixed price
The scope includes a description of the legal work involved to complete the transaction, which usually includes:
- Document review
- Discussions and meetings (internal and external) with third parties
The scope doesn’t limit the number of meetings, calls or revisions. This approach allows for open and robust communication between me and my client, because there is no clock ticking in the background every time there is a call, email or conversation.
Phase one or more…
Sometimes, the proposal is broken up into phases based on information that is known at the time. As work progresses, more information may become available and my client may wish to adjust the scope.
At this point an additional scope can be established with an associated fixed price. For example, in a real estate purchase transaction, the first phase may be review, negotiation and finalization of the purchase contract. Then, once the title company issues the title documents, a second scope may be desired based on a review of those title documents.
Fixed Price – No Surprises
The fixed price is the total charge for my legal work completing the agreed transaction and will include a break-down of the payment terms.
Typically, the fixed cost is split into an initial payment with subsequent payments through the duration of the transaction. The fixed price does not include any third-party fees or charges, which are out of my control.
The fixed price is just that – fixed; and won’t change for the entire transaction!
If one of the underlying assumptions materially changes, and both my client and I mutually agree, only then will the price be adjusted.
The assumptions are important considerations that I rely on for determining the scope and the fixed price. Assumptions usually include: time-frame for the delivery of the legal work, establishment of the transaction’s structure, identifying what my client will provide (documents, availability for meetings, document review, feedback, etc.), a statement defining what occurs if the transaction fails to close, and in that case how the fixed price should be adjusted based on mutual agreement between my client and me.
What’s The Cost? Is There Good Value?
Upon determining the scope and detailing the assumptions, I set my price. A draft proposal is sent to you for review, we then discuss it, and if needed a revision can be produced. Once you approve the proposal, it establishes our engagement and I begin the work.
I have had instances in which the transaction timing stretches longer than anticipated or the transaction structure changes entirely. In those instances, the conversations with my clients have been frank, open and productive, and we have generally agreed to adjust the scope, timing and/or price and then move on.
…Now It’s Up to You!
The fixed price model is not for every client, and some prefer to stay with the billable hour model. In either case, so long as my client is satisfied and I accomplish their business objective, we are both well served.
By offering the fixed-price option for legal work, I give small business owners and entrepreneurs a valuable choice to set their budget and have peace of mind knowing what they are purchasing and what it will cost.
Updated: June 6, 2020