Fixed fees vs hourly — what works where.

Most small firms end up with a mix. The question isn't which one to use — it's which one to use for which matter type, and the honest answer requires looking at your own data, not the seminar slide.

The two questions that decide it

1. Can you predict the work to within ±20%?

If yes — fixed fee almost always wins. You'll capture the upside of efficient delivery, the client gets certainty, and nobody's arguing about a bill at the end. The Fixed-Fee Calculator will turn a realistic hours estimate into a defensible price with contingency baked in.

If no — hourly. Fixed-fee work where you can't scope is fixed-fee work where you wear the overrun yourself.

2. Are you scoping the matter, or scoping a generic template?

Fixed fees work when you've done five of these and know what they cost. The classic playbook: residential conveyancing, will drafting, employment-tribunal early-stage advice, simple commercial contract reviews. You've got benchmarks.

Fixed fees fail when each one looks the same on paper but varies wildly in practice. M&A under £5m is a famous trap: every deal “should” take 80 hours, every other deal actually takes 140.

Matter-type-by-matter-type table

Conventional UK small-firm wisdom, your mileage will vary — but the directions are usually right.

Conveyancing — fixed fee

Highly standardised, well-benchmarked, client expects a quoted price. Hourly billing on residential conveyancing is almost always under-priced — you'd struggle to charge for the actual hours.

Watch-out: scope creep on the “simple” complications (probate as part of sale, leasehold extensions, gifted deposits). Build a matrix of add-ons with set prices.

Wills & probate — fixed fee on drafting, hourly on contested estates

Will drafting and standard probate is fixed-fee territory. Anything contentious flips to hourly the moment it's clear there's a dispute.

Family — mixed

First-meeting fee fixed (£200–£500). Contested matters hourly. Some firms experiment with stage fees (Form E, FDA, FDR each priced) — works for clients but fragile to overruns.

Employment — depends on side

Acting for employers on settlement agreements: fixed fee. Acting for employees on tribunal claims: hourly with a budget. Acting for employers on tribunal defence: hourly.

Commercial contracts — fixed-fee bands

Standard NDA/MSA review and negotiation: fixed band by complexity (£500 / £1,500 / £4,000). Bespoke drafting on novel terms: hourly. The trick is enforcing the band — a 200-page software licence is not in the £500 band even if the client thinks it should be.

Litigation — hourly with a budget

Litigation matters drift. The honest move is hourly with a published budget per stage, monthly client update on costs, and a re-budget conversation if a stage breaches by more than 15%.

M&A and corporate finance — hourly, regardless of flatness

Deal slippage and re-scoping are the rule, not the exception. Don't fix-fee these unless your firm has 30+ recent comparable deals to draw the budget from — and even then, build the abandonment-risk premium in.

The honest break-even calculation

For each matter type you're considering fixed-fee, look at the last twelve actually-delivered matters and pull:

• Average actual hours from time records
• Standard deviation of those hours
• Blended cost per fee-earner hour (not rate — fully-loaded cost)

The fixed fee that makes economic sense is roughly:

(mean hours + 1 standard deviation) × cost per hour ÷ (1 − target margin)

That gives you a fee that protects margin even on the bad end of the distribution. If the resulting fee is higher than the market clears, you have your answer: stay hourly on this matter type, or improve the process before changing the pricing.

Run the same matters through the Matter Profitability Calculator to see effective hourly rate and margin under the current pricing — that gives you a sense of whether the underlying matter is profitable enough to absorb the fixed-fee variance.

The three fixed-fee mistakes

1. Pricing from a competitor's quote, not your cost

“The firm down the road does it for £750.” Maybe they're losing money. Maybe their cost base is different. Maybe they cut corners. Their price tells you about the market — your cost tells you whether the price is sustainable for you.

2. Letting scope creep pass quietly

Fixed fee = fixed scope. The moment a client wants something outside scope, that's a conversation, not a free addition. The conversation: “Yes, we can do that — it's outside the original fee, here's the additional cost / hourly arrangement for the extra work.” Most clients respect that. The ones who don't are the ones who were always going to be a problem.

3. Not having an exit clause

Every fixed-fee engagement letter should have a re-pricing trigger: “If the matter materially changes — new party, new scope, time elapsed beyond X — we'll have a conversation about a revised fee.” Most clients agree at signature. Almost no-one invokes it. But you can't invoke it later if it isn't there.

The decision in one sentence

Fixed-fee the work you've done a hundred times; hourly the work that's genuinely going to vary; track the margin on each so you can move matter types between models as you learn.

The firms that make fixed fees work aren't braver than the ones that don't — they're running tighter on their own data.