Recently I’ve had a bunch of conversations about fixed fees (also called flat fees) in the context of providing professional services: lawyers, auditors, accountants, fraud investigators…
And I get a lot of pushback on the idea. Professional service providers have been billing by the hour forever. So when you talk about almost ignoring hours and billing instead for value, it causes a lot of heartburn.
Here’s my experience: I started charging flat fees when I started my company over 8 years ago, and it has been fantastic. There are some special situations in which I bill on an hourly basis, but I bet 85% to 90% of my work is done on a flat fee basis.
I love it because I don’t have to keep track of my time. What an administrative nightmare to keep track of every tenth of an hour (that’s each six minutes)! I also love it because I have a personal incentive to be efficient in my work. If I can do a project a little faster, I still get paid the whole fee. And most importantly, I don’t want to sell my time. I want to sell my expertise and all the intangibles I bring to the table. A fixed fee does that for me.
My clients love it because they know exactly what the project will cost them. They have a definite number and they don’t risk falling into the black hole of hourly fees. They can determine up front if the price offers them enough value. We can negotiate on scope, and add or remove parts of the project as their budget permits.
And here’s one more reason to love fixed fees: I’m not a fast food joint. You don’t get immediate service at the price of $x per hour. We’re not flipping burgers and I’m not offering you an opinion this week because you waited forever to look for an expert.
Unless, of course, you’re willing to pay for an “accelerated” work schedule. Here’s how I see it: If an attorney calls me and needs an opinion this week, and I can provide it, that’s fine. But he should have to pay for a rush job. Hourly fees don’t take the rush aspect into account. And I think fees for a case in which I have to work harder should reflect it.
Enter the fixed fee. A fixed fee also works well when a lawyer needs a particular type of expertise in a case. There’s special knowledge that often merits charging more than on other cases in which the expertise is a bit more run-of-the mill. All sorts of things can be taken into account when quoting a fixed fee: type of case, working conditions, travel involved, inconvenience to the expert, particular expertise, availability of other experts, and so on.
Hourly fees often don’t reflect these variables because many service providers have one standard hourly fee for all work. I think they’re missing out on an opportunity to do less paperwork and get a better range of fees for their services.