Hate it or love it, the age-old business model of billing by the hour is gradually dying off. Law firms everywhere are transitioning to alternative billing practices to meet the changing needs of their clients. For most firms, this just means offering flat fee services. But subscription based billing is another interesting possibility that a small number of law firms have started to explore. While certain types of legal work are clearly not good candidates for subscription billing (e.g. personal injury), we believe that we’ll see an increase in subscription billing for transactional law firms in the future. Here’s how to start a subscription based law practice today, and why you should consider it.
Why Start A Subscription Based Law Practice?
Here are the two main reasons why subscription based billing makes sense:
Predictability for Clients
Hourly billing creates a terrible experience for clients because it’s totally unpredictable. Nothing is worse than opening up your bill at the end of the month, without having a clue what you’ve been charged, and then inevitably finding out it is significantly higher than you had anticipated or budgeted. Yet, this is probably the norm for most clients when paying for hourly legal work.
This is a poor client experience and leads to decreased client satisfaction. Large companies are reducing their legal budgets, and small businesses are resorting to alternative legal services for this very reason.
A good attorney client relationship is based on trust and working toward the same goals. With hourly billing, the incentives don’t properly align. The cost of legal services should be based on the value received, not the number of hours it took.
And that’s where subscription billing comes in. Nothing is more predictable than subscription pricing. Subscription based billing provides the predicability that clients are looking for, and it aligns both sides’ incentives in the relationship.
Scalability for Law Firms
Not only is subscription pricing better for clients due to the increased predictability, it’s also better for law firms due to greater scalability. Scalability is somewhat of a novel concept in the hourly-billing world of law, but in other industries, achieving scalability is essentially the Holy Grail.
Scalability means the capacity to increase outputs (i.e. revenue) while maintaining the same, or only a moderately increased, level of inputs.
The big problem with hourly billing is that scaling is impossible when you bill by the hour. There are only 24 hours in a day. You can’t possibly bill more time than that…in other words, your outputs are capped!
With subscription based billing on the other hand, the key difference is that you are not being paid directly for your time. You get paid regardless of whether your time is being occupied or not. Even flat fee pricing does not offer this same level of scalability because your fees are still fixed by your workload.
Subscription billing creates enormous potential to increase your margins and drive incredible growth for your business, all while improving the experience for your clients. It’s a win-win.
How to Start A Subscription Based Law Practice
Here are three basic steps to help guide you as you think about starting a subscription based law practice:
Determine A Pricing Model
The comfort of being paid for every moment spent working on a client matter is deeply ingrained in the minds of most attorneys. So inevitably, the most challenging and frightening aspect of starting a subscription based law practice is figuring out what to charge.
The most straightforward way to come up with your pricing model would be to use actual data. Add up the total amount of revenue you generate from a sampling of clients over the course of a year. Try to include some higher value clients, and some lower end ones to get a complete spectrum. Then find the median, and divide it by 12 to determine a monthly subscription rate.
But don’t just set that price in stone as your only offering. Determining a subscription pricing model is more a function of marketing than it is operations.
You should consider offering different tiers, and always stay flexible and be willing to adapt your pricing over time, depending how clients react to it. Eventually you’ll settle on a system that works great for everyone.
Productize Your Offerings
Your monthly subscription cost shouldn’t encompass any and every possible legal service, or clients may take advantage of you. Define some boundaries and create different pricing tiers by productizing your offerings.
One word of advice when it comes to productizing services is to focus on a niche vertical, e.g. only restaurants or only e-commerce businesses. By narrowing your focus, you’ll be able to get a really in depth understanding of the types of legal services your clients need most, the frequency those services are needed, etc. This knowledge is helpful when determining what each subscription pricing plan should entail.
For example, you might offer a low cost tier for startup companies or smaller businesses with less frequent or complex legal needs. This may only include routine services like consultations and basic document review or preparation. You might even put a limit on the number of consultations or documents per month in order to protect yourself.
Offering this type of entry level package won’t produce as much income, but is a great idea nonetheless because it will serve as a gateway to forming a longterm relationship. Make it affordable for small clients early on, and as the client’s business grows, you’ll be able to upsell them to a higher priced plan which encompasses many more services.
The key here is to think more like a startup or a technology company, and not a law firm. Be observant, and take note of which services are needed most at various stages in a client company’s lifecycle. Constantly tweak your product offerings to better reflect the needs of your customers along the way.
Implement Technology to Maximize Efficiency
Maximizing your operational efficiency is probably the biggest key to making a subscription billing model work for your law practice. Unlike the old hourly billing approach, where you actually make more money the less efficient you are, with subscription billing, time is of the essence.
Remember that whole scalability thing? Greater efficiency means more clients can be served while maintaining roughly the same amount of overhead, and that equates to scale.
A subscription based law practice should be run like a tech company, where leveraging software is a critical component of your business. You should also have a powerful website with a lot of content and other resources for clients to access on demand.
We have previously covered many of the best software programs for lawyers. Here are a few suggestions to get you started:
- WordPress for website and content management
- Lexicata for CRM, client intake forms, and e-signatures
- Clio for matter/document management and tracking hours (still a good idea even if you don’t bill for them)
- Stripe for subscription billing
- Xero for accounting
- Zapier for task automation
The legal industry is in the midst of a gradual, yet significant shift away from time-based billing, toward other, more customer-centric business models.
Subscription based billing may be unconventional in the legal world, but it’s a proven model that works extremely well due to its inherent capacity for scale. It has become the go-to business model for all types of modern businesses, from cloud software to grocery delivery.
Two of the primary benefits of the subscription billing model, which are especially important for today’s law firms, are predictability and scalability.
Predictability gives clients the assurance they need for their budgets, and ensures a constant stream of income for the law firm. Scalability comes from the increased capacity to generate revenue that is not tied directly to time, which is a finite resource.
Due to these facets of the subscription billing model, we predict that more transactional based law practices will begin to adopt this business model in the future. It may seem daunting at first, but if done properly, it will result in a win-win outcome that is better for both the law firm and its clients over the long haul.