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<blockquote data-quote="Jaysen" data-source="post: 689" data-attributes="member: 1">How do law firms make money? How do they charge clients?Law firms make money by charging clients for the legal services they provide. They make a profit by generating more fee income than their overhead expenses and salary costs. Overheads include a bunch of things, such as supplies and equipment, rent, technology, marketing, recruitment, non-lawyer salaries and many more.&nbsp; The most common way to charge clients is to bill by the number of hours worked on a matter. This number is then multiplied by the hourly rate of the fee earners to get the appropriate fee. The hourly rate takes into account the fact that different bands of fee earners have different rates, so a partner’s hourly rate is going to be significantly higher than a trainee’s rate. It’s also easy to calculate because law firms require fee earners to record the time they spend working.&nbsp; The billable-hour system is a pretty straightforward way to charge clients and determine profit. But it has also been criticised as encouraging overbilling, bill padding and inefficiency. That’s led to a range of new few arrangements being introduced into the mix such as alternative fee arrangements and hybrid fee arrangements. The former covers fixed fees and contingent fees (often in litigation where fees are based on successful recovery), whereas the latter might include capped fees, which are hourly rates up to an agreed amount. This is not to mention the discounts that are often given to clients for repeat or volume work.</blockquote>

[QUOTE="Jaysen, post: 689, member: 1"] [B]How do law firms make money? How do they charge clients?[/B] Law firms make money by charging clients for the legal services they provide. They make a profit by generating more fee income than their overhead expenses and salary costs. Overheads include a bunch of things, such as supplies and equipment, rent, technology, marketing, recruitment, non-lawyer salaries and many more. The most common way to charge clients is to bill by the number of hours worked on a matter. This number is then multiplied by the hourly rate of the fee earners to get the appropriate fee. The hourly rate takes into account the fact that different bands of fee earners have different rates, so a partner’s hourly rate is going to be significantly higher than a trainee’s rate. It’s also easy to calculate because law firms require fee earners to record the time they spend working. The billable-hour system is a pretty straightforward way to charge clients and determine profit. But it has also been criticised as encouraging overbilling, bill padding and inefficiency. That’s led to a range of new few arrangements being introduced into the mix such as alternative fee arrangements and hybrid fee arrangements. The former covers fixed fees and contingent fees (often in litigation where fees are based on successful recovery), whereas the latter might include capped fees, which are hourly rates up to an agreed amount. This is not to mention the discounts that are often given to clients for repeat or volume work. [/QUOTE]

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