How to Determine a Lawyer Contingency Fee Average for Your Firm

Let’s start by summarizing the situation surrounding contingency fees.

For some, it might seem odd that a lawyer would be willing to take a case, including all the work involved, without 100% guaranteed payment. It seems risky, but as they say, the greater the risk, the greater the reward. At least in some cases.

When a lawyer offers a contingency fee as a payment option, they get the following benefits:

• More clients. Since contingency fees increase access to justice by not requiring the client to have the funds upfront to pay typical legal fees, the lawyer automatically makes their services more accessible to more clients.
• Potential for a higher payout. The client may not have the money to pay the lawyer’s typical legal fees, but even a small percentage of a verdict worth millions will probably yield more for the lawyer anyway.
• Ability to offer more pricing options for clients. Increasing access to justice is one part of it, but offering more options for clients to pay their legal fees showcases good service. In some cases, the client may end up paying a bit more if they go with a contingency fee, but since the lawyer is assuming all of the risk and the client gets the benefit of having their legal issue taken care of, they may not mind.

But at the end of the day, the lawyer has to draw from their experience and intuition to determine whether the risk of taking a case on a contingency fee arrangement is worth it. After all, if the case isn’t successful, then the lawyer doesn’t get paid. They also have to carefully consider each case and ensure that the percentage they’re charging is fair for them and the client they represent.

In this article, we’ll explore more about contingency fees and how they work and give you tips on how you can set your own lawyer contingency fee average for your value-based pricing law firm.

Let’s get started!

What are Law Firm Contingency Fees?

In a nutshell, a contingency fee is when a fee is paid to a lawyer if a case is successful. The definition of success and the exact amount that’s paid to the lawyer is determined in advance via negotiations between a lawyer and their client.

The law firm doesn’t set a contingency fee for each lawyer, but it may be part of their law firm pricing strategy. A contingency fee is set on a case-by-case basis by each individual lawyer. In other words, the lawyer will look at the information surrounding a case and first determine whether a contingency fee is appropriate, then specify a fair percentage based on the risk involved with the case and who is responsible for paying litigation costs (lawyer or client).

Types of cases where contingency fees are standard are outlined in the table below:

Contingency Fee Benefits and Criticisms

A contingency fee seems like a good deal for the client, right? Well, some agree, but others have concerns. Some recognize that contingency fees are good because they increase access to justice for clients who would otherwise not be able to afford legal counsel. Setting a contingency fee for a case also further incentivizes the lawyer to win a case.

But on the other hand, critics point out that the amount of risk that the lawyer is assuming is too little compared to the high lawyer contingency fee average that they usually take, which is typically 33% or ⅓. Other criticisms include settling cases too soon for too little and encouraging too many frivolous suits because they’re easy to win and lawyers gain a significant percentage of the payout.

But really, if the lawyer carefully examines the facts of each case and comes up with a fair percentage that accurately reflects the risk they are taking, and allows the client to receive fair compensation, then using contingency fees does increase access to justice.

How is a Typical Contingency Fee for Lawyers Calculated?

Calculating a fair contingency fee for lawyers requires a careful look at several factors, including:

1. The risk and complexity of a case. Cases with more risk should also come with more rewards, so a lawyer should take a higher percentage of the recovery earned from a successful case.
2. Litigation costs and who is responsible for them. As with any case, there will be additional costs associated with filing, discovery (research), witness costs, evidence costs, and overhead (copying and scanning of documents, postage, etc.). These costs can quickly add up, and for a lawyer who is forking over the funds upfront, it means they are likely to take a higher percentage of the funds earned from a successful case to cover these costs, especially if the case is complex.
3. State and federal laws surrounding legal fees. The ABA presents a blanket set of standards regarding fees of any kind, with best practices encompassing fairness, reasonable compensation, and avoiding things like conflict of interest or other factors that may compromise the integrity of the lawyer-client relationship.

That said, the most common lawyer contingency fee average ends up being 33%, or ⅓ of the total earnings of a case, but can go up to 40% (in some jurisdictions) as the complexity and risk involved in taking the case increases.

Of course, different states will have different rules regarding caps and when and how contingency fees can be paid out to the lawyer.

For example, the Florida Supreme Court dictates how these fees will work for personal injury cases (the most common type of case where contingency fees are used).

The main way that payout for contingency fees is determined in Florida, at least on a basic level, hinges on two main factors:

1. The amount of the proposed lawsuit (over or under $1 million)
2. Whether the lawsuit settles before or after the defendant answers the complaint (the defendant has 20 days to answer)

If the case settles before the defendant answers, then a fee cap of 33% (or ⅓) is placed on the settlement up to $1 million. If the settlement exceeds $1 million, then the cap is reduced in increments of 10% per million.

If the defendant answers within the 20-day period or the case goes to trial and is successful in favor of the injured, then the cap changes even more:

• The plaintiff's lawyer can accept up to 40% of the total earnings from the case, up to $1 million
• If the settlement is more than $1 million, then the Florida Supreme Court decides the percentage increments that the lawyer is paid, thus affecting the total amount that the lawyer receives in the end

In New York, contingency fees always cap at 33% or ⅓. From there, the client and lawyer's amount hinges on what they negotiate regarding responsibility for disbursements and expenses. There are basically two options here. The first is that the client agrees to reimburse the lawyer for disbursements and expenses in exchange for a lower contingency fee percentage. The risk here falls to the client, as they are responsible for reimbursing the lawyer regardless of the case outcome. But if the case is won, then the client gets a bigger payout.

The second is basically the opposite. The lawyer assumes all the risk, including being liable for expenses and disbursements. Of course, as a result, the lawyer will take a higher contingency fee.

As you can see, the amount of money that a lawyer and a client receive from a contingency fee case can vary quite a bit depending on the state where the case is conducted. Taking all possible factors into account, then assigning a fair contingency fee percentage is the way to go.

Tips to Determine Firm Contingency Fees

Considering all the different factors of a case and using that information to assign a percentage that you should charge your client can be difficult. The goal, of course, is to negotiate a fair contingency fee that works for both of you.

Pricing contingency fees based on the case's complexity and not just setting a standard contingency fee to use for every case is the key to providing your clients with an ethical, fair fee.

Here are some tips that you can use to determine what your lawyer contingency fee average should be:

Consider Disbursement And Expense Responsibility

Your first plan of action should be determining who will be responsible for any disbursements and expenses for the case. In some cases, like our New York example above, will see the client accepting responsibility for expenses in exchange for the lawyer taking a lower percentage of the winnings for the case.

The most common scenario is that the lawyer pays for disbursements in advance and takes those fees out of the winnings of the case, aside from the contingency fee.

In either scenario, the client must have a clear understanding of exactly what they are responsible for paying. Of course, it’s possible that disbursements may end up being more than what was originally anticipated. In the case of significant changes to the expenses of a particular case, the lawyer should communicate these changes to the client immediately and discuss with them how the changes will affect the settlement or award they may receive.

Understand The Different Types Of Contingency Fees

Thankfully, there are a variety of options for contingency fees that lawyers and clients can use when negotiating agreement terms. These standard contingency fee approaches can be used to balance risk and fairness when setting a percentage (or percentages) for what a lawyer earns for a case.

Understand State Rules And Regulations

Different states have different rules regarding when and how typical contingency fees can be charged, depending on a variety of factors. It’s important to research your state’s specific rules surrounding contingency fees so that you can ensure compliance.

Typical contingency fee rules indicate that:

• Contingency fees cannot be used in the majority of divorce, domestic relations, or family law cases. This is usually because the goal for these cases must be focused on doing what is best to come to a resolution that is fair and reasonable for both parties and that shouldn’t be influenced by monetary gain.
• The use of contingency fees is also prohibited in all provinces in Canada, and the majority of states in the United States, for criminal cases as the lawyer shouldn’t be seeking financial compensation from their client as their goal for these matters.

Determine Risk By Weighing As Many Factors As Possible

Setting a fair lawyer contingency fee percentage requires paying careful attention to every factor of the case that could affect its outcome and the level of risk in terms of if the lawyer will get paid or not.

This means taking the following considerations into account:

• Whether accepting the case is in the law firm’s best interest (e.g., based on lawyer experience, skills, and abilities, the potential to limit access to future opportunities, circumstances surrounding the case).
• The overall likelihood that the case will be successful, based on the success of similar cases the firm has taken on in the past
• What resources (lawyers, time, etc.) that the firm will have to dedicate to ensure a successful outcome for the case
• How much other firms in the area may charge for the case, and whether a fair fee can be established that is still competitive

Research the Lawyer Contingency Fee Average in Your Area

Competitive research can be beneficial for seeing if what you’re charging (or thinking about charging) for a contingency fee for a particular case aligns with other law firms in your area. If you find that there’s a big difference in what you charge versus what they charge, you can correct it before it becomes an issue that your clients notice. If nothing else, it will help you set a starting point for how you should be pricing your legal services.

And, of course, if you have trusted colleagues that you can reach out to, ask them about their process in setting a typical contingency fee. They might have insight that you never considered. If you have a similar level of experience, reaching out can be extremely helpful for setting your own fees.

Contingency Fee vs Hourly

Table sources: 1, 2, 3

Concluding Remarks

Providing a number of options for clients when it comes to legal fee pricing is part of being a forward-thinking law firm. But when it comes to contingency fees, the key takeaways to ensure that you’re pricing ethically include:

• Weighing the facts and information available to you about the case and setting a percentage based on that rather than using a set percentage (e.g., 30%) for every contingency fee case that walks through the door
• Ensuring that your clients understand their responsibilities with regards paying disbursements and expenses, and ensuring that this information is clearly stated in the contingency fee agreement
• Having a clear understanding of the different types of standard contingency fees out there, and being able to choose a pricing model that best reflects the case before you
• Knowing what your state and federal laws are surrounding contingency fees to ensure compliance
• Researching other law firms that offer contingency fees in your area to ensure that you stay competitive

Providing clients with a number of pricing options, while excellent for customer service and access to legal services, can be challenging to manage without an effective software solution. With AltFee, you can manage your alternative fee arrangement pricing and collaborate with others within your firm quickly and efficiently to set the best pricing strategies for each client.

Get a demo today and see the software in action!

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