Contingency Fees for Lawyers Guide: What It Is + How to Streamline

Many clients can face financial constraints during cases, which can result in delayed or missed payments. According to the 2024 Legal Industry Report, roughly 15% of law firms stated that getting paid is the most challenging aspect of their operation.

However, incorporating different fee structures into your billing process may help you accommodate clients who might otherwise not be able to afford your services, reducing your risk of unpaid invoices.

Contingency fees are an alternative fee structure that allows lawyers to accept payments from clients only if they win their case.

In this article, we’ll provide an overview of what a contingency fee is, the benefits and downsides of charging clients on a contingency basis, and how to decide if incorporating this billing method is right for your practice.

What Is a Contingency Fee?

A contingency fee is an attorney fee agreement stipulating that attorneys only get paid if they win client cases. Lawyers typically use contingency fees for cases that result in settlement payouts.

The exact percentage attorneys will charge can vary, but it must follow the American Bar Association’s guidelines. Fees must be in line with the following:

• The fees must be reasonable based on the projected settlement amount.
• All fees must factor in the time spent on the case and the work needed to adequately represent the client.
• The fees must align with what’s typically charged in the area for similar cases.
• The fees should be appropriate to the attorney’s experience.
• The contingency fee agreement must stipulate whether the fee is fixed or contingent.

This fee structure is inappropriate when an attorney represents a defendant in a criminal case or domestic relations suits like divorces. Some common case types that may benefit from contingency fees include:

• Personal injuries
• Employer disputes
• Sexual harassment cases
• Workers’ compensation cases
• Car accidents
• Property damage cases
• Medical malpractice
• Breaches of contract
• Insurance claims

Though every contingency fee agreement is unique, they typically work similarly.

For example, let’s say you’re representing a client who was injured in a car accident. Rather than charging them hourly for your services, you enter into a contingency fee agreement. That agreement states that you’ll receive 35% of the total settlement amount, but only if the case is successful.

If the client does not receive a settlement, you’ll receive nothing. If the court awards your client $100,000, you’ll receive $35,000 under the agreement.

What Is the Average Contingency Fee for a Lawyer?

According to the ABA, the average lawyer contingency fee is between 33% to 40% of the awarded settlement. However, the average fee can vary depending on the type of case and type of law you practice. Here’s a breakdown of average fees based on the type of law practiced:

• Personal injury lawyer contingency fee: Simple personal injury cases can result in lower personal injury lawyer contingency fee percentages, likely closer to or below one-third of the settlement amount. More complex cases requiring intense preparation and legwork may allow higher fees.
• Disability lawyer contingency fee: The average disability lawyer contingency fee is typically 25% of the settlement amount. However, complex cases can require fees of up to 40%.
• Employment lawyer contingency fee: The average employment lawyer contingency fee sits between 25% and 40% of the settlement amount.

Overall, these fees are designed to fairly compensate attorneys for their work. However, since contingency fees are only paid out when a case is successful, it can be challenging for practices to maintain their law firm's profitability. On the other hand, this fee structure can be beneficial for clients as they receive the representation they deserve without having to pay upfront hourly legal fees.

What Is a Sliding Scale Contingency Fee?

Fixed contingency fees may be the norm for most cases, but even those rates can be out of reach for some clients. That’s where a sliding scale contingency fee can help. These fees change based on the client’s ability to afford legal representation.

Individuals who struggle to make ends meet may qualify for a lower contingency fee, while those who are in stronger financial situations may be charged higher fees. It’s ultimately up to you to determine the appropriate fees to charge on a sliding scale.

Keep in mind that if you choose to operate on a sliding scale, you’ll want to tailor your billing to reflect this. This lawyer billing toolkit can help you create a functional strategy.

Additional Costs to Incorporate Into Contingency Fees

Contingency fees are designed to make it easier for clients to afford your services. However, your fee needs to be high enough to adequately compensate you for your work.

This means you’ll need to factor in the following costs in your law firm’s accounting process as you set your contingency fee for each case:

• Discovery: The time and effort required for subpoenas, depositions, and other discovery tasks vary between cases. Consider the complexity and scope of evidence gathering needed for your client’s case.
• Overhead: Paralegal salaries, resources, paid services, and similar expenses are ongoing costs needed to keep your firm running. You can account for these costs in your contingency fee rate.
• Incidentals: Incidental costs refer to expenses incurred throughout the course of your work preparing for the case and representing your clients.

If the case is won, you can deduct the following expenses from the settlement or bill your clients directly—whether you win the case or not. This includes fees such as:

• Court filing fees: Filing fees vary based on the case and jurisdiction, but you can bill this fee directly to the client depending on your agreement.
• Expert witnesses: These witnesses often charge hourly rates averaging between $450 and $500 per hour. Maintain detailed records when working with them to ensure you’ve accounted for charges in your client’s invoice.
• Copies of documents: Even if you’re making copies of documents in-house, you’ll need to account for the cost of paper, toner, and other materials.
• Postage: Though you can file many documents online, you may still need to send physical documents through the mail. Postage can add up, especially if the case is complex.

Failure to account for those additional costs could result in higher out-of-pocket expenses for the practice. If you plan to charge clients directly for certain fees, state these terms clearly in the fee agreement and discuss this with them before the case begins. Speaking to the client early on can help avoid surprises and potential disputes in the future.

Take our continuing legal education (CLE) course about trends in attorney fees to learn about fee agreements, various billing models, and your fiduciary duty as a lawyer.

Pros and Cons of Contingency Fees

Contingency fees can make it easier for clients to afford your services by reducing the upfront costs they must pay before receiving a settlement offer. However, before you implement this alternative fee arrangement into your practice, it’s important to familiarize yourself with the pros and cons of charging on a contingency basis.

Pros of Contingency Fees	Cons of Contingency Fees
Attracts more clients who may not otherwise be able to afford your services	Increased risk since you only get paid if your client gets a settlement
Demonstrates your commitment to the case by assuming the financial risk	Rates will depend on the settlement amount set by the judge
Helps you tailor billing strategies to your clients needs and financial capabilities	Rates may not align with the scope of work once you start representing the case

Pros

Billing your clients on a contingency basis can help your practice stand out and be more accessible to a wider variety of clients, but that’s not the only upside you may see from using this payment method. Here are some of the benefits of incorporating contingency fees into your practice.

• Attracts more clients: Contingency fees make it easier to attract more clients. Since they’re not required to pay your fees upfront, more people can afford your services and get the help they need.
• Demonstrates commitment to the case: By charging on contingency, you assume the risk. You only get paid when they win their case, so your clients will feel more confident working with you.
• Lets you give advice to those truly in need: Contingency fees give you the ability to help people who are truly in need of legal advice without worrying about their ability to pay.
• Ability to choose a model that works for your client: If a client is experiencing financial strain, you can still represent them and save them money by offering a sliding-scale contingency fee.

Cons

Though contingency fees can be beneficial, they’re not without their challenges. Here are some of the potential disadvantages you may experience by incorporating this billing method into your practice.

• Increases your risk: You will only receive contingency fees if you win your client’s case. If the lawsuit isn’t successful, you won’t receive compensation for your work, which could hurt your practice’s budget.
• Amounts depend on the settlement: The judge is free to set the terms of the settlement. If the settlement amount is low, your contingency fee will be smaller, thereby impacting your profits.
• May discourage some clients: Contingency fees are great for individuals who can’t afford hourly rates upfront. However, clients with stronger finances may not like giving you a portion of their settlement. They may find it cheaper to pay an hourly rate.
• It may be difficult to determine a fair rate: Some cases may seem easy when you first accept them, but they can become more difficult as you start working. This uncertainty in the scope of work can make it difficult to determine a fair rate.

How to Set a Fair Contingency Fee

Setting a fair contingency fee doesn’t have to be challenging. Here are a few tips to help you set a fair fee for each case you work on.

• Look at common fees in the area: Contingency fees can vary from state to state. You can get an idea of average fees through publically available sources, including pricing information from legal directories and industry reports. You may also get rough estimates from other law firms in your network. With this research, you can base your rate on those averages.
• Consider the complexity of the case: Every case is unique, and one may require less work than another. Take your time and do some research into the case before you set your rate. If the case seems easy and is likely to be successful, consider setting a lower rate. If the case is more complex, a higher rate may be more appropriate.
• Think about your expertise: If you have a proven history of helping people get settlements for cases like the one you’re taking on, you may be able to charge a higher rate.
• Don’t shy away from sliding scale contingency fees: Offering a sliding scale contingency fee can help you attract new clients more easily while also giving you a chance to benefit your community. Sliding scales let you represent people who otherwise might not receive the legal help they need.

Keep these rates fair and reasonable whenever possible, and be prepared to explain how contingency fees work to any interested clients. This will help clear up any potential confusion to clients upfront—especially to those who are more familiar with hourly rates or retainers.

Streamline Contingency Fee Billing with LawPay

Using contingency fees as a lawyer can help you broaden your practice and make it easier to attract a larger client base. However, billing your clients on a contingency fee basis while still accounting for other costs can be difficult.

At LawPay, we’ve tailored our legal billing software to help attorneys accurately bill their clients. The program can take the stress out of billing whether you charge based on an hourly rate, retainer, or contingency.

Schedule a demo today to see how LawPay can improve your billing processes.