Hola readers,

I hope you found the previous blog on various billing types for law firms useful where we have talked about the following billing types:

• Fixed Fee
• Consolidated Hourly Fee
• Person Hourly Rated Fee
• Retainership Fee
• Milestone based Fee

So, tell me, how confident you are now in choosing the right billing type for any matter?

I know, it isn’t as easy knowing the various billing types available.

So let me assist you today in selecting the right billing type for your legal matters.

Suppose you’ve got a new engagement at your law firm. The toughest question now is “When to Choose What Billing Type?”

Billing is the most important component of any organization, and it is one of the important factors that’s going to determine your relationship with the client.

Let’s get into the discussion about when to offer what billing type:

1. Fixed Fees or Lump Sum Fee
   This billing type means offering a Fixed Cost for the engagement.
   Following are few points you may consider offering Fixed Fee:
   • These are short-duration engagements max up to 10-20 hours
   • The average hourly rate is the important basis to offer the Fixed Cost. Average hourly rate is the average hourly rate of your resources considering various costs. E.g., most law firms assume this cost as Rs. 5,000.00 /hr.

   Example:  If you estimate 10 hours for any engagement, you may calculate and offer the cost as below:
   10 hours X Rs. 5,000.00 = Rs. 50,000.00 is the fixed fee amount you could provide.

2. Consolidated Hourly Fee/ Blended
   As we know ‘it’s an hourly rate’ only, but rates are uniform for all the resources independent of their skills and experiences.
   Following are few points you may consider offering Consolidated Hourly Rate:
   • Usually, these are slightly longer duration engagements say > 10 hours
   • Such transactions should not involve any unique or special skills.
3. Person Hourly Rated Fee
   It’s an hourly rate, but ‘Each Resource has Different Hourly Rates’.
   Following are few points you may consider offering Person Hourly Rate:
   • Usually, these are slightly longer duration engagements say > 10 hours
   • Involve unique or special skills. Lawyers of different skills and experience are going to be a part of it.
4. Retainership Fee
   Retainership means ‘Recurring Engagement’ for a longer duration. When the client seeks the services regularly then Retainership Fee is one of the best practices. This simplifies the lot’s billing complexity.
   
   Following are few points you may consider for offering a Retainership Fee:
   • Recurring engagement for a longer duration. Say 10-20 hours/month for a minimum of 6 months.
   • Services should be general in nature and should not involve special competency.
   • Adding a cap is advisable, which means certain fees for a fixed duration, if the hours exceed beyond a certain limit, the subsequent hours are charged at a certain hourly rate.

   
   Example: Suppose the client seeks legal advice or services of 15-20 hours/month on different matters for the duration of 6 months. Retainership is the best suited in that case.

   You could define the cap as 20 hours. Fixed cost as 100,000.00 and the hourly rate as Rs. 5,000.00/hour.

   Assume your team spent 24 hours in any month, the changes should be calculated as below:

   Total Hours: 24
   Fixed Hours (Cap): 20
   Extra hours: 4 (@Rs 5,000.00/hour)
   Total cost: 100,000.00 + 4 X 5,000.00 = Rs. 120,000.00

5. Milestone based Fee
   Deliverables of the Engagement is divided into various milestones as per their complexity.
   Following are few points you may consider offering Person Hourly Rate:
   • Services are involving different kinds of works in terms of complexity and competencies.
   • These are critical transactions.

   
   Example: Suppose any engagement involves the following services and you may define a price for each such as:

   • Drafting & Research (Rs. 50,000.00)
   • Negotiation (Rs. 250,000.00)
   • Execution (Rs. 75,000.00)

   Prices are indicative you may arrive at as per the time estimation and your average hourly rate.

Though it’s a complex subject hope I’m able to provide some enlightenment and could give an idea about choosing the right billing type.

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