Alternative Fee Arrangements: Success Fees
Although most law firms rely on traditional billable hours to assess client fees, the legal profession is increasingly diversifying billing options. Today, 84% of law firms also make use of alternative fee arrangements for their services.
There are many different forms of alternative fee arrangements for attorneys to turn to. Flat fee billing is the most popular approach to alternative fee arrangements, but it’s not the only option.
Other fee solutions include:
- Contingency fees
- Reverse contingency fees
- Retainer fees
- Hybrid or blended fees
- Success fees
One less common, but still useful, the fee arrangement is the “success” fee. At first glance, success fees look quite similar to contingency fees. However, they have unique features—and benefits—that make them stand out from other options.
What is a success fee?
A success fee is a type of alternative fee arrangement in which a law firm provides its services in exchange for a percentage of the amount awarded to a client in a judgment or settlement of a case. The fee is only paid in the event of a successful outcome, but clients may need to pay for expenses depending on what costs are included in the original agreement.
A success fee is a good option for clients who prefer predictable costs and timing and have explicit goals. The success fee structure is most often used for litigation matters, but can effectively be deployed for other practice areas, such as intellectual property law.
Success fees may also function as a type of “incentive” or “performance” fee for law firms. Under this arrangement, clients may pay standard rates upfront but agree to an additional fee if the legal matter is successfully settled for them.
The difference between “success fees” and “contingency fees”
“Success fees” and “contingency fees” are similar in that both delay client payment until an outcome for a matter has been reached. But whereas success fees may charge certain (albeit reduced) fees at the outset of the case, contingency fee structures typically do not assess any fees until the matter has been resolved in the client’s favor.
How success fees can benefit your law office
Success fees can benefit your law office by helping to incentivize legal professionals to work harder for a successful result in any case they’re handling because their payment is contingent on delivering results for a client instead of billable hours. Success fees can also benefit law firms by making their services available to a broader range of clients who might not otherwise have the capital needed to retain their services.
Another benefit of success fees is that they are highly customizable for clients. You can personalize the terms of fees to the case, such as the conditions of success or the fees that apply, which can help align the interests of law firms and clients alike.
Risks of using a success fee
Legal professionals taking on new clients and cases know there are always risks involved with any particular agreement, and success fees are no exception. The risks can be significantly higher, but the rewards can be as well.
Law firms should carefully weigh the odds of winning a particular case, the hours needed to get the work done, and the possibility that the case could drag on for months or even years, costing them more than the fee they initially agreed upon with the client.
Law practice management software and success fees
When your team is working on a case that’s being paid for with a success fee arrangement, it’s essential to ensure you’re not wasting valuable time or opportunities to take on new cases.
While there are numerous considerations for building appropriate fee structures, one practice that you can undertake is consistently and thoroughly tracking time. When attorneys track time for success fee structures, they can better estimate the amount of work that goes into successfully resolving a matter. This can help determine sufficient upfront fees and fair success fees following the conclusion of a matter.
And no matter what fee structures your law firm uses, it’s vital to make it easy for clients to pay. Offering convenient online payments can make an enormous difference in the speed and consistency of payments.
Standard success fees for attorneys
The American Bar Association (ABA) states that the average success fee is between 33-40% of the amount paid to the client upon a successful case resolution. These percentages could be incredibly beneficial to your law office if appropriately negotiated. However, as noted above, success fees can be tailored to the circumstances of the matter—there isn’t a one-size-fits-all success fee formula.
Rocket Matter ensures your law firm doesn’t lose when you use a success fee!
Rocket Matter’s legal practice management software includes robust legal billing tools so you can put the right fee structures to work for your practice.
Rocket Matter’s best-of-breed legal management software covers everything you need to run an efficient and profitable practice, including:
- Time tracking
- Legal billing
- Online payments
- Trust Accounting
- Advanced Reporting
- Mobile apps
Schedule a free demo or sign up for a free, no-obligation trial with Rocket Matter today.