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Like all professional services, the way a law firm manages legal costs is fundamental to its commercial success.
While incremental billing remains the standard for most legal practices, with conditional fee arrangements common for litigation, there are alternative billing approaches that may better reflect client needs and firm goals. Especially as new technologies change how work is done and what clients expect, law firms risk leaving revenue on the table and missing opportunities to attract new clients if they don’t adapt.
A familiar approach is not necessarily the most efficient or profitable one. To stay competitive, law firms may need to reconsider traditional billing and adopt methods that serve to:
- Streamline operations
- Increase profitability
- Give clients more choice
- Enhance competitiveness
By focusing on these priorities, firms can make billing work harder for both clients and the business.
Common fee structures used by Australian law firms
Billing in six-minute increments has been a hallmark of Australian law firms for decades. It is consistent and predictable, particularly in how it tracks staff and partner time, supports resource management, and makes legal costs clear to clients.
Yet in the current market, the traditional hourly approach can feel outdated. Many clients now prefer greater certainty in billing which is more achievable through alternative fee structures.
Embracing a modern approach to billing does not necessarily require abandoning fundamentals like timekeeping. But it does help change the focus from a purely time-based model to one centred on outcomes.
What to consider when selecting a fee structure
Choosing a fee structure affects more than how clients are billed. It influences the way a firm:
- Markets its legal services.
- Allocates resources.
- Recognises work in progress.
- Determines partner and staff remuneration.
As people increasingly use AI to answer legal questions, assist with drafting wills, or review legal wording in documents, both lawyers and clients are questioning how this impacts legal fees.
Completing a task faster with technology doesn’t automatically justify lower fees. Yet time-based billing creates this very result, rather than fees reflecting the value of the outcome achieved. This consideration – along with client needs and expectations, type of work, resource planning, financial risk, and even regulatory compliance – are all important when selecting a fee structure.
When to review or change your fee structure and billing practices
Fee structures should never be set and forget. Like any other business practice, businesses benefit from regular reviews to ensure fee structures and pricing remain fit for purpose and commercially sustainable.
A review of billing practices:
- Provides firms with a clear view of operations and finances.
- Ensures work-in-progress is accurately tracked so all effort is captured and cash flow is maintained.
- Keeps legal costs and disbursements (court fees, expert reports, medical reports, etc.) properly recorded and managed to prevent surprises for clients and maintain alignment with cost agreements.
- Aligns partner and staff remuneration with actual work delivered to promote fairness while supporting efficient operations and long term financial health.
Reviewing billing also helps firms stay competitive and responsive to client needs as the legal services landscape continues to evolve.
Exploring alternative fee arrangements
There are a range of options for structuring legal fees, depending on the type of work your firm engages in and your clients’ expectations.
Here are four alternative fee arrangements to incremental billing you may wish to explore:
Fixed or flat fees
Fixed fees are a great outcomes-based solution to billing for standard legal work, such as:
- Preparing a will
- Setting up a trust deed
- Handling day-to-day corporate matters
They tend to work best when the firm has a clear understanding of the matter, the client’s needs, and the resources required. When structured properly, they provide predictability for both clients and the firm which can greatly assist with resource planning and cashflow management.
The most critical factor in fixed fee arrangements is clear scoping. Agreed fees cover defined work, with any out-of-scope tasks billed separately at an hourly rate. Communicating this upfront will help avoid bill shock and ensure transparency around legal costs and disbursements.
As artificial intelligence becomes more prevalent, tasks that once took a full day can now be completed in several hours. But speed does not diminish the value of the work. A successful outcome still relies on a lawyer’s skills, judgement, and training – and a fixed rate allows the focus to remain on quality and certainty of legal services, rather than hours spent.
Retainers
Retainers provide stability for law firms and clients. Clients gain access to legal support on call, without the administrative or financial burden of in-house staff. For firms, retainers provide predictable allocation of resources which supports cash flow management and enables planned resourcing for ongoing work.
These arrangements are often suited to large corporate clients, long term contracts, or certain industries where legal issues arise continuously rather than as a single matter.
Retainers can be offered on their own or combined with fixed fees or incremental billing to balance risk and revenue. This hybrid model gives firms flexibility without compromising efficiency.
Blended or hybrid models
Hybrid models blend different fee structures across services so law firms can leverage the advantages of each. They offer firms flexibility to adapt to client needs and internal resourcing capabilities, without the impediment of strict incremental billing.
A hybrid approach also allows firms to view productivity and profitability through a different lens. By choosing to measure work against outcomes over time spent, firms can:
- Become more efficient
- Reduce write-offs for unbilled or unrecoverable work
- Manage work in progress more effectively
This approach can also help alleviate cash flow pressures caused by long running matters or underutilised resources, particularly when the firm knows how to apply technology and forward planning strategically.
Conditional Fee Arrangements
Commonly known as “No Win, No Fee”, conditional fee arrangements are a well-established option in litigation, particularly in personal injury matters. In addition to offering greater cost certainty, they can expand access to justice by allowing clients who might not otherwise be able to fund proceedings to have their cases heard.
For law firms, this model carries both opportunity and risk. Successful cases can deliver higher returns through agreed uplift fees, but firms also carry significant exposure of time and resources. Work may go unpaid if a matter is unsuccessful, and long running cases can tie up cash flow for extended periods. Firms that manage multiple conditional fee cases at a time may face serious financial strain.
A successful conditional fee arrangement depends on clear cost agreements that set out fees (including disbursements and any uplift) and are supported by careful risk assessment, resource planning, and open communication with clients.
How RSM can help
RSM’s experienced advisers work with managing partners, CFOs, and boutique law firms to optimise business operations and improve profitability.
We can assist with:
- Reviewing billing practices and fee structures to ensure work-in-progress is captured accurately and revenue flows efficiently.
- Helping firms maximise cash flow and profitability across the revenue cycle.
- Advising on ways to extract value from current operations and make processes more efficient.
- Highlighting areas where money may be left on the table, succession may be constrained, or incentives misaligned.
- Offering strategic guidance that strengthens firm operations without changing your culture.
Our goal is to help your law firm operate as efficiently and profitably as possible, while strengthening competitiveness and maximising client value.
FOR MORE INFORMATION
To speak with an experienced business adviser about optimising your law firm’s billing practices, please contact your local RSM office.
Frequently asked questions:
Conditional fee arrangements in Australia are subject to legislative and professional conduct requirements. These vary by jurisdiction and typically cover written cost agreements, disclosure obligations, limits on uplift fees, and duties to act in the client’s best interests.
For example, in South Australia, the Legal Practitioners Act 1981 (SA) and associated rules require that:
- A conditional costs agreement must be in writing and signed by the client.
- The agreement must clearly state how legal fees are calculated and what constitutes a successful outcome.
- Any uplift fee must be disclosed, along with the basis for calculating it and the maximum uplift that may apply.
- Clients must receive written disclosure of their rights, including options for costs assessment or review.
These rules also typically prohibit "contingency fees", where a lawyer takes a percentage of the final settlement amount, as opposed to an "uplift fee” which is a premium on the hourly or fixed rate.
Clients often assume “No Win, No Pay” means the lawyer takes a percentage of the settlement, as seen in Hollywood movies. In Australia though, it typically means the lawyer’s professional fees are only payable if a successful outcome is achieved.
Disbursements (such as court fees, expert reports and medical reports) are often treated separately and may still be payable, depending on the cost agreement. If the matter is successful, the firm may charge its fees plus an uplift, which is a premium on those fees and must be clearly documented.
Clear explanations at the start will help clients understand what is deferred, what may still be payable, and how any success component applies.
Conditional fee arrangements can align a firm’s interests with the client’s outcome, which many clients find reassuring. They can also broaden access to legal services by allowing clients to pursue litigation without paying professional fees upfront. For firms, conditional fee arrangements can be a differentiator in competitive markets and, in successful cases, can generate higher returns through uplift fees.
On the downside, this model does transfer financial risk to the firm. Time, staff costs, and disbursements are often carried for months or years with no guarantee of recovery. Conditional fee arrangements also require careful case selection and disciplined governance to avoid building a portfolio of unprofitable cases.
For many firms, conditional fee arrangements work best as a strategic pricing tool alongside other fee structures rather than a default model for all matters.
In a conditional cost agreement, a “successful outcome” is usually defined in the costs agreement rather than being left open-ended. It may refer to winning a judgement, securing a settlement, obtaining a recovery, or achieving another defined commercial result.
Most firms specify the trigger for success at the outset to avoid ambiguity and support clear billing and disclosure obligations.
Yes. In Australia, lawyers can charge an uplift fee on top of their standard fees if the case is successful, subject to legislative limits and disclosure requirements. The uplift reflects the additional risk the firm takes on by deferring fees and carrying the cost of managing the case.
Any uplift or success-based fee must be clearly documented in the costs agreement and explained to the client before the matter begins.
