Despite the gradual transition away from hourly billing and toward alternative fee structures, subscription billing is still a pretty foreign concept in the legal industry. But we predict that this will change in the future. Subscription billing is not a viable model for every kind of law practice, but for transactional firms that work with business clients, the subscription model makes a lot of sense and has many advantages on both sides. In this post, we’ll cover 5 major reasons why lawyers are switching to subscription billing to give you a better understanding of how it works.
1. Predictable costs for clients
Nothing is worse than receiving a “surprise bill” from your lawyer.
You open it up, and almost inevitably, it’s more money than you had anticipated. “Wait…sending those 4 emails cost me $350!?” You make a mental note to think twice before emailing your lawyer next time, as you begrudgingly pay the bill.
When you put yourself in your clients’ shoes, you can start to see how much friction this kind of billing causes. Is this really the kind of customer experience you want to deliver?
With subscription billing, clients will know exactly how much money they should budget for their legal expenses every month. They don’t have to worry about opening up a surprise bill, and most importantly, they will perceive greater value in your services because they won’t feel like they are being nickel and dimed.
2. Predictable income for law firms
Just like it’s nice for clients to have predictable expenses each month, it can be a huge benefit for law firms to have predictable, recurring income.
If you bill hourly, your workload and income might vary significantly from one month to the next. It depends how many new client matters you take on, and how much time each matter requires.
With subscription billing, you know exactly how much money will be coming in each month. If you have 12 subscribers paying $4,000 each, you can expect to see $48,000 in revenue.
Not only does this ease your stress, it also makes budgeting much easier. You can deduct all your fixed expenses like salaries and rent, and you will know exactly how much money is leftover for a marketing budget and other things, like software investments.
When your income is so variable, it’s tough to ever justify taking on additional expenses because you are uncertain if you’ll be able to cover them the next month. But ultimately, this uncertainty will prevent you from making strategic investments to grow your firm, which may create a barrier to your success.
3. Better relationships and increased client satisfaction
As a lawyer, your client relationships are the lifeblood of your business. Anything you can do to strengthen these relationships is worth the effort because it will not only increase the lifetime value of existing clients, but also generate new referrals in the future.
For these reasons, the “surprise billing” scenario explained above is extremely problematic. Nothing creates friction in a relationship like an unexpected, higher-than-anticipated bill. Even though it’s incredibly common, this billing practice directly opposes your efforts to build strong relationships with your clients.
If you work with business clients, your clients are constantly facing new legal issues. Their legal needs don’t just resolve themselves and go away like a personal injury case might. It’s in the best interest of both parties to build a long-term relationship where you can provide services on an ongoing basis.
Subscription billing is the perfect model for this because it completely eliminates friction in the relationship. Both sides can ignore the awkward topic of billing issues and just communicate openly to solve problems. Predictable billing creates a win-win scenario and helps lawyers build thriving client relationships that last.
4. Eliminate the pressure to constantly be billing
With hourly billing, your time is your money. This creates a lot of pressure on lawyers to always be billing. Reading an email? Bill the client. Answering a phone call? Bill the client. Sending a text? Bill the client.
It can be really stressful to constantly have a timer running in the background during every moment of your day. But it’s ingrained in the culture of law. If you aren’t billing, you are losing money.
With subscription billing, you get paid regardless of how many hours you log on the timer. If you don’t have anything urgent to work on, you can go home early for the day without worrying about the lost time.
Subscription billing enables you to take back your life from the death-grip of the clock, and instead focus all your energy on providing great services for your clients.
5. Unlock greater scalability for law firms
We have written before about why the age-old hourly business model is broken. What it comes down to is that time doesn’t scale. You can’t create more hours in a day, and this imposes a ceiling on your potential business growth.
Subscription billing enables you to break free from the constraints of the billable hour. You earn recurring income, regardless of the number of hours you work.
You can grow your firm without needing to hire more people because your income is no longer tied to anyone’s time. It is tied to the value you deliver to your clients each month. That value has no limits.
Tips to Help Make the Transition to Subscription Billing
Breaking free from hourly billing and going to a subscription model is certainly a challenge. But don’t let that hold you back. Here are some considerations to help ease the transition:
- Offer tiers with different service levels so you can appeal to a broad group of potential clients with different amounts of legal needs
- Create a well defined list of services that are encompassed by each subscription tier, or cap the number of hours at each tier to protect yourself from unexpectedly high workloads
- Require a minimum commitment, e.g. 3 months, to set the right tone for a long-term relationship
- Leverage software to create systematic workflows and maximize your efficiency; this is the key to scaling your client base
For more information, see our post about how to start a subscription law practice.