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Fixed fees reaping rewards for smaller firms
SME 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.
Jerome Doraisamy
Australian cloud-based legal practice management software Smokeball has just released its State of Small Law Australia Survey results, for which it interviewed 134 small law firms across Australia in February of this year.
“Clients are demanding bill certainty and are more aware of the potential for cost blow outs,” Smokeball proclaimed.
A rise in requests and profits
According to the findings, 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 “across most practice areas”.
NSW, 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,” the provider said in a statement.
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, Smokeball 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, Smokeball noted that movement towards fixed pricing has not been positive for all small law firms around Australia.
No South Australian firm has found it unprofitable, the provider noted, 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,” Smokeball explained.
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,” she opined.
“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, Ms Rayward surmised, gives the clients choice and a more collaborative approach to the work.
Smokeball CRO Jane Oxley (pictured) 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,” she argued.
Bright-looking future for fixed fees
Looking ahead, Smokeball noted 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.
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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