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In the past year, the Ambrose Law Group of Portland, Ore., switched from the billable hour to a flat-fee structure. The results have been dramatic, with the five-attorney firm reporting a 90% increase in profits. “The clients who we have interviewed liked knowing the rate upfront, even if that rate turns out to be higher than it would have been if billed by the hour,” said Jan Alexander, chief operations officer for the boutique firm, which specializes in transactional aspects of the real estate-secured finance industry. “They like it better because they can budget.” For small law firms like the Ambrose Law Group, moving away from the billable hour to the flat fee attracts more clients and creates efficiency. And in the past five to 10 years, fixed pricing or value-billing � where a lawyer sits down with each individual client to determine the cost upfront � is becoming more popular, according to Ed Poll, a law firm management consultant for LawBiz Management Company in Venice, Calif., and author of the Secrets of the Business of Law: Successful Practices for Increasing Your Profits. Technology is fueling the drive for firms to switch to flat fees, said David Ambrose, founder of the Ambrose Law Group. “In the past, something that would have taken two hours, we can now do it in 10 minutes,” he said. “If we only bill for that 10 minutes, obviously we lost that revenue.” It’s a desirable structure for all firms but it is much more practical for small firms, said Alexander. “It’s much easier for us to implement it than a large firm because we have no bureaucracy to go through,” she said. “Everyone wants to go in that direction, but they don’t know how to get there.” The art of the fee According to Poll, “determining what a fee should be is an art, not a science.” It requires the firm to consider the costs of running the firm, to have a tap on the marketplace and to understand the value to the client, he said. Setting the wrong rate is the reason some solo practitioners and small firms still fear switching to flat-fee rates, said Alla Roytberg, director of the Association of the Bar of the City of New York’s Small Firm Center, a support group for solos and small-firm practitioners. “Flat fees are a very tricky situation,” she said. “It is hard to estimate, and the lawyer feels he is undercutting and the client feels he is being overcharged.” The Ambrose Law Group bases its pricing on its previous experience of how much it would cost if it were billing by the hour and other various factors, said Ambrose. Alexander said, for example, the firm will use flat-fee billing in a real estate loan transaction in which the lawyers initially analyze the transaction, provide consulting advice, assist in putting the deals together, prepare the loan documentation and, finally, close the deal. For this, the firm management sets the pricing depending on the complexity of the deal and the volume of transactions that the lawyers may perform on an annual basis for a particular client, she said. “Even if technically the preparation of the loan documents might consist generally of the same actual documents for a $100,000 deal as compared to a $3 million deal, the risk is much higher to the law firm on the larger deal, and thus, higher charges may apply in that case,” Alexander said. Mark Chinn, of Chinn & Associates, a five-member family law practice in Jackson, Miss., said his firm also customizes the price for each individual client. “And when the client knows how much it is going to cost, it gives them a better understanding if they want to go ahead and take action,” said Chinn, who added that since he switched to flat-fee rates in July 2005, he has zero accounts receivable. “If you lose a client because of the upfront price, you lost a client that would have ultimately not paid you anyway,” he said. Chinn said, in addition to increasing revenues, billing by flat fees has also improved the atmosphere of his firm. “The culture of our firm itself has been transformed,” he said. “Lawyers think if they are not billing, they are losing money. They are trained to think like this. Even when they are home for the weekend, they are thinking they are losing money by not billing.” Flat fees have made his lawyers happier, Chinn said, and clients can call two to three times a day without worrying they are being charged. Keeping clients happy is the sole motivation for why William Gaines Ellyson, a solo practioner in Richmond, Va., charges a flat rate of $500 per year for his legal advice to small businesses. He refers any litigation or complicated matters to outside counsel.

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