Guide · Law firms

How to measure the profitability of a fixed-fee legal matter

Even under a fixed fee, recording work and time remains necessary to inform the client, manage workload and understand matter margin.

Direct answer

Connect the fee set by the engagement agreement with work performed, time, expenses, disbursements and payments on account. Weekly or monthly, compare actual cost and work to complete with expected fees. Trigger a review as soon as a time, cost or scope threshold is crossed.

Lawyer reviewing the cost and work to complete for a fixed-fee matter in a legal library — Managing a fixed-fee matter means comparing expected fees, the cost of time already spent and the work still to complete.

Turn the fixed fee into a manageable budget

Break the fee into phases or work categories: initial analysis, documents, correspondence, hearing, negotiation or closure. Give each group an internal time or cost budget without turning the client agreement into a promise of hours. The internal objective is to identify drift, not to replace the agreed fee rule.

Track payments on account, fees, expenses and disbursements separately

A payment on account received is not margin: it is an amount to allocate under the relevant treatment. Firm expenses, client disbursements, scale costs and fees need to remain distinguishable. This separation supports a detailed client statement and avoids treating positive cash flow as proof of profitability.

Tracking payments on account, budgets and billing in Tempolia — Budgets, payments on account and invoices answer different questions and must be reconcilable without being confused.

Calculate a forecast margin

Fixed-fee matter — worked example excluding tax
Item	Amount
Expected fixed fee	€9,000
Cost of actual time	€4,100
Non-recharged expenses	€300
Estimated cost to complete	€2,400
Forecast margin	€2,200
Forecast gross margin percentage	24.4%

The calculation is €9,000 − €4,100 − €300 − €2,400 = €2,200. If a new hearing increases cost to complete to €4,000, margin falls to €600. That is the point to review scope, delivery or the terms available under the engagement agreement.

Realisation variance and margin: two complementary checks

Realisation variance = fees billed excluding tax − selling value of work performed (hours × planned selling rate). A positive result is over-recovery; a negative result is under-recovery.

Margin = fees excluding tax − cost of time − non-recharged direct costs. For a forecast margin, include the estimated cost to complete in costs.

Key point: a zero realisation variance means fees were billed in accordance with the theoretical hourly rate; margin checks whether the overall fee structure is correctly calibrated against costs.

Define alerts that lead to action

70% of the time budget used while the phase is incomplete.
Work to complete not updated for over 30 days on an active matter.
Out-of-scope work waiting for assessment.
Insufficient payment on account for the next stage under firm policy.
Material time missing or entered too late to explain.

Preserve client transparency

Internal management is not intended to produce automatic bills without professional review. It helps lawyers keep clients informed of expected fees, expenses and disbursements and produce a coherent statement. For French firms, the National Internal Regulations published by the CNB are the professional primary source to consult; the signed agreement and rules applying to each matter remain decisive.