The billable hour is losing its grip.
Clients despise the unpredictability. Lawyers loathe having to account for every six-minute increment. Technology continues to reduce the number of billable hours for a matter, inadvertently penalizing firms for becoming more efficient at what they do.
Lots of firms are changing. Flat fees, blended rates, subscriptions, collared fees, contingency… anything that’s not charging by the hour.
Here’s the problem:
Risk-sharing sounds great on paper. Quote a number. Do the work. Get paid. Once a firm stops hourly billing, everything back office must transform.
Nowhere is that more apparent than in personal injury cases. Risk-sharing has been the status quo for decades. A lawyer will take your case on contingency, front every expense and only get paid if there’s a recovery. When you look for a car accident lawyer in Memphis, TN, you pay nothing up front. The law firm is financing filing fees, expert reports, medical records, and investigation expenses on their own ledger. Your lawyer isn’t just providing legal expertise. They are investing in your case.
That’s not a billing decision.
That’s a financing decision.
What you’ll walk away with:
- Why Firms Are Walking Away From The Stopwatch
- What Risk-Sharing Actually Costs Behind The Scenes
- The 5 Systems Every Risk-Sharing Firm Needs
- Where Most Firms Get This Wrong
Why Firms Are Walking Away From The Stopwatch
There’s no finesse required to this side of the equation. Approximately 71% of clients prefer paying flat fees for their entire case versus watching a meter spin. Predictability is king. Uncertainty is not.
They have taken notice. Approximately 72% of U.S. law firms have at least one alternative fee arrangement in place and 59% of firms billed flat fees only or in combination with hourly rates in 2024.
But here’s the part nobody puts in the marketing material…
Fewer than one in four legal matters actually get billed that way.
The space between “we offer it” and “we use it” speaks volumes. Providing a risk share fee is a marketing effort. Executing one profitably is an operations endeavor. And most companies never make it past step one.
What Risk-Sharing Actually Costs Behind The Scenes
Hourly billing loses money before you even consider alternative fees. Firms billed out just 89.6% of worked time in early 2024. That means approximately 1/10 of all work disappears into thin air between the timesheet and the bank account.
Risk-sharing doesn’t fix that leak. It moves it.
When you bill hourly, the loss is on the invoice for someone to see. When you bill flat fee or contingency, the loss is buried in the matter itself….. and there’s no meter running to reveal it.
Three things change immediately.
Cash Flow Becomes The Whole Game
Hourly businesses earn income about when the work is performed. Risk-sharing businesses do not. Work is performed now. Payment is received months (or years) later, if ever.
That means payroll, rent, software and case expenses all must be paid for out of prior year billings. A law firm can double its caseload every year and still run out of money if it grows too fast. They go broke. It’s a daily occurrence.
Case Selection Turns Into Underwriting
If a client pays by the hour, a weak case is still a paying case. If the firm bears the risk, a weak case is a straight loss – the time, the advanced costs, and every other thing that lawyer could have been doing instead.
So intake stops being a customer service function.
It becomes a credit check.
Wasted Effort Has Nowhere To Hide
When billing hourly, an inefficient process is still billable. With risk sharing, that inefficiency hits the firm’s margin directly. Every copied form, every signature chased, every file left untouched for three weeks is now a cost.
That changes what “good operations” even means.
The 5 Systems Every Risk-Sharing Firm Needs
Companies that succeed with this model aren’t any smarter. They simply construct the framework first, then execute the agreements second. This is what that framework looks like.
Know The Real Cost To Deliver
Before you can price quote a fixed fee or percentage, a firm must have a good idea what a matter of that type actually costs to produce — labour, overhead, advanced costs and everything else. Guesswork is how firms price themselves out of business on their highest volume area of practice.
Basic starting metric is revenue divided by delivery labour cost. Lots of margin means lots of experimentation opportunity. Low coverage means addressing delivery costs before adjusting price.
Score Every Case At Intake
Not every case deserves a yes. A workable scoring system usually looks at:
- Clarity of liability
- Severity and documentation of damages
- Available insurance or collectable assets
- How cooperative and reachable the client is likely to be
Companies that accept nearly everything they are pitched will have quality issues buried in their stockrooms. Companies that turn down more opportunities typically do better with the ones they accept.
Track Cycle Time Like Revenue Depends On It
Why would that work? Because it would. With risk-sharing, a file that takes twice as long to process gets exactly the same fee and uses twice as much capacity. Time to resolution becomes less of an admin metric and more of a profitability metric.
Build A Cost Ledger Per Matter
Advanced expenses must be monitored at the file level on a real time basis, they should not be reconstructed at settlement. If a firm does not know their true exposure until the end of a case, they are operating blindly throughout the life of the case.
Plan Capacity Before Signing
Accepting more work than the team has capacity to handle will doom a risk-sharing model very quickly. Match every new matter up against available hours, not hope.
Where Most Firms Get This Wrong
Number one mistake: viewing risk-sharing as a pricing adjustment vs. a business model adjustment.
The firm updates its engagement letters. Updates its website. Maintains every other process exactly the same as it was last year. No pricing data. No client scoring at intake. No cycle time monitoring. Then wonders why top line looks good but bank account continues to dwindle.
The second mistake is price based on competition and not costs. Just because another firm charges what they do doesn’t mean it reflects what it costs your team to deliver the work.
Third is surreptitiously decreasing effort to shore up margin. That’s what ends careers. Risk sharing only applies if you gain efficiency through better systems NEVER by skimping on the client’s case.
Bringing It All Together
Risk sharing fee structures are here to stay. Clients demand predictability, and technology continues to undermine the rationale for charging by the hour.
But these arrangements only reward firms that can answer three unglamorous questions:
- What does this work actually cost to deliver?
- Which cases are worth accepting?
- How fast can the team move a file from intake to resolution?
If you have answers to those questions, you can confidently take on risk and make money from it. If you don’t, you’re just gambling with better marketing.
The billable hour hid a lot of operational sins. Risk-sharing doesn’t hide anything.
