This would probably be one of the most common topics that I am asked about, and probably one of the most misunderstood. The whole debate around fixed fees versus hourly charge rates. So, this is what we see.
When speaking with practitioners that implement fixed fees, I’ll ask how they arrived at setting the fee. Generally, I get one of two responses. It was based on last year’s fee with a bit extra added on or the practitioner mentally estimated the number of hours to complete the work at the corresponding charge rates or earn rate to provide the estimate. You will notice here that I have also mentioned estimate. In many cases, that is really what is taking place in such circumstances. The firm is simply providing the client with an estimate, so is it really a fixed fee? Often at the end of the process, the original fee is what is charged, however this is something that needs to be managed well.
A couple of tips:
Review the fixed fee regularly (at least annually)
Continue to record time to compare against the fee charged and ensure the cost of performing the work is being recouped
Ensure fees are market competitive
Be really clear on the scope of the work.
Where new, additional, or different work arises beyond the original scope, communicate the additional fee to the client prior to completing the work to receive sign off or acknowledgement of this extra cost.
It’s also important to appreciate the difference between the setting of fees and the collection of these fees. Fixed fees are one thing; the payment of fees is completely different. So whilst the fee may be paid monthly or quarterly, I would hope clients aren’t under any illusion that they wouldn’t be charged more if there was a significant change in their requirements.
To me, given our profession’s overall dislike for discussing fees with clients, the utilisation of fixed fees can be quite dangerous and a recipe for trouble. But for firms with strong communication, there may be benefits in such an approach.