My evolving fee structure

I have discussed fees and fee structures on this blog ad nauseam and I thought I’d give an update on how the quest to develop a better fee structure is going.  My preference has been to work on a fixed fee basis or, at the very least, a kind of maximum budget basis where there is a ceiling to the work I do although I work at my hourly rate of R800 per hour to get there.  I have been collecting information on what I have historically charged clients for various jobs and have been using that information to quote fixed fees for various stages of a matter or for whole jobs where those jobs are fairly limited by their scope.  An example of this is a basic application for a recission of a judgment or applications which require similar amounts of work.

A couple of my friends and colleagues look at me like I am a bit nuts when I talk about my shift to fixed fees because doing so means taking a risk that the work involved will far exceed the quoted fee.  An example of this is a commercial agreement.  At first glance you would expect that to be a pretty easy thing to quote for but as my one colleague pointed out, she once had what appeared to be a pretty standard agreement to draft and her client and the other party then spent a good few months commenting and editing to the point where she spent quite a lot more time working on the agreement than she anticipated.  I can see the point there although I think that can be planned for by, perhaps, setting a maximum number of hours for that sort of job at the same time as the fee is fixed.  Notwithstanding those sorts of measures, there is still a risk that the work involved will exceed the time spent on a job and the relevance of the time spent is pretty obvious – there are still only a certain number of hours in a day and the amount of money I take home at the end of the month is linked to how much work I was able to do that month and how efficiently that work was completed.

Another important feature of my fee structure is that I agree a fee with my client up front and then routinely call for a deposit for the work that I do.  Some people might regard this as anything from premature to a bit of a chutzpah and while I understand the concern, there is a pretty good reason for this.  When you walk into a bookstore and pick up a couple books you would like to take home with you, you can’t walk out the store with the books with the intention of reading them and then perhaps come back to pay for them later.  You have to pay for them first.  The first point I’d like to make is that a client who comes to me for assistance presumably intends paying for my services and it is therefore not inappropriate to request a deposit up front to be paid into my trust account until I invoice that client for the work.  I was considering joining an attorney in Hyde Park before I decided to start my own practice and he has a policy of taking his full projected fee up front and his rationale is that his clients are the people who pay his staff and they should therefore make the full payment of the projected fee into his trust account before he starts doing the work.  Once the payment is made, the work will be done diligently and efficiently.

In some instances I follow the same approach.  Where the scope of the fee is limited and I can quote for the whole job, then the deposit is usually the fee itself.  Where the job is going to take a bit longer to complete, I quote a deposit to be maintained throughout the duration of the job and then bill as I go.

Another rationale for taking deposits up front has to do with risk.  As a professional whose income is directly proportional to the work I do (and it remains the case even with fixed fees because I believe my fees remain proportionate to the work that is required and the value I see myself adding), I must take the risk that the estimated amount of time and work involved may exceed the parameters of my fee.  This risk exists in addition to the risk that I won’t be paid.  I don’t grant credit for outstanding fees and, instead, will work out an alternative plan for clients who can’t afford to pay deposits as a lump sum.  Either way, I ask that a deposit be paid because this helps me minimise the risks I bear for the work I do.  One of the ways to minimise those risks is to ensure that what I do bill is paid almost immediately.  I do quite a bit to keep my fees reasonable relative to my colleagues who do similar work and in isolation and as part of the deal for keeping my fees down, I ask that they be paid immediately.  If I had to factor in the fees that clients don’t pay after I do the work and produce a result then I would have to start increasing my fees noticeably to cater for a degree of non-payment.  I can already hear people saying that I should be doing this already and I agree that it would be prudent.  At the same time doing so would only penalise those clients who do pay deposits and who settle my fees on time.

Of course another reason to hold money from the beginning of a job is that I often have third parties to pay on my clients’ behalf.  These third parties include advocates, the sheriff (for service of documents) and others.  To do this I need to have money in trust so I can pay these service providers on my clients’ behalf.

So the approach I take now is to quote a fixed fee either for the whole job or for stages in that job together with a deposit I ask be paid into my account before I start working on that job.  I have also introduced a special fee for initial consultations with clients which I ask be paid at or before the initial consultation.  This fee is R500 for a consultation that doesn’t exceed an hour or so.

I realise that some people may regard this post, once again, as a bit of a cheek but I do believe in being transparent about my fees and have been pretty transparent about my thinking behind various fee structures for quite some time now and it is only appropriate that I continue doing this when it comes to my own fee structure.

Ultimately I regard each client as vital to my practice and do what I can to constantly improve my service levels and the work I produce.  In return, I ask that my clients work with me to help keep my costs down and pay deposits and then settle any outstanding fees immediately that they are due.

Tags: fees, fixed fee, deposit, non-payment, risk management, hourly fees