When a fixed fee engagement takes more time than expected, profitability drops—and at some point, you need to act. LeanLaw gives you two approaches to handle this:
Hour Limit with a Limit Rate — set upfront, built into the fixed fee
Converting Fixed Fee time entries to Billable — done after the fact, before billing
Both approaches let you recover revenue on over-scoped work, but they work differently and have different implications—especially for firms that use compensation reporting.
This article explains both options, when to use each, and why converting time to billable is generally the better choice for firms that rely on comp reports.
Option 1: Hour Limit with a Limit Rate
How It Works
When creating or editing a fixed fee, you can enable "Add hour limit" and specify:
Hour Limit — the maximum number of hours included in the fixed fee
Limit Rate — the hourly rate applied to any hours beyond the limit
If the team logs more hours than the limit, the overage is automatically calculated at the limit rate and added to the invoice as an additional line item upon drafting the fee.
Example
Fixed fee: $5,000
Hour limit: 20 hours
Limit rate: $300/hour
Team logs 25 hours
The invoice shows:
Fixed Fee — $5,000
5 additional hours × $300 — $1,500 as an adjustment
Total: $6,500
When It's Useful
You want a built-in safety net for scope creep
The client has agreed to an overage structure upfront
You need an automated cutoff without manual intervention
Limitations
Compensation reporting: The overage amount is tracked separately from both the fixed fee and standard billable time. In reports, it appears as "Additional Charges" — but where it lands depends on whether the fixed fee has an Invoice User set:
If an Invoice User is set before invoicing: the overage is credited to that user's account. It is not distributed across allocation recipients, so the attorneys who actually worked the overage hours still receive no credit.
If no Invoice User is set (the more common scenario): the overage falls into unallocated revenue. Unless your firm has the setting enabled to allocate unallocated fees to the responsible attorney, the overage effectively belongs to no one in comp reports.
In either case, the underlying time entries remain categorized as Fixed Fee (they are not reclassified), so they continue to flow through fixed fee revenue allocation rather than the standard hourly billing path.
Not manageable after the fact: The overage adjustment is an invoice line item, not a standalone fixed fee. It does not appear on the Fixed Fees page, and there is no way to reassign or reallocate the overage amount from the Fixed Fees page. If compensation attribution is wrong, there is no self-service fix.
Client communication: The overage appears automatically on the invoice, which may surprise the client if you haven't discussed it proactively.
Inflexible in practice: The limit applies uniformly. You can't selectively decide which hours should be overage vs. included.
Option 2: Converting Fixed Fee Time Entries to Billable
How It Works
Instead of setting a limit upfront, you monitor profitability as work progresses and take action before billing. When a fixed fee is approaching or has crossed the unprofitability threshold, you can:
Open the fixed fee from the Fixed Fees page
Go to the Time Entries tab
Select the entries that are driving unprofitability
Click Make Billable
This converts those specific Fixed Fee time entries into standard billable hourly entries. The converted entries are then billed at the user's rate, separate from the fixed fee.
Example
Fixed fee: $5,000
Team has logged 25 hours; profitability is now negative
You identify 5 hours of out-of-scope work
You convert those 5 entries to billable at $300/hour
The invoice shows:
Fixed Fee — $5,000
5 hours of billable time — $1,500
Total: $6,500
The result is the same dollar amount—but the entries are now properly categorized as hourly billable work.
Why This Is Better for Compensation Reporting
When you convert Fixed Fee time to billable:
Those entries exit the fixed fee revenue allocation entirely
They flow through standard hourly billing compensation instead
Compensation reports correctly reflect that the work was billed hourly
Working attorney credit, originating/responsible splits, and firm share all calculate based on hourly rules—not fixed fee allocation methods
If your firm uses the compensation reporting add-on, this distinction matters. The hour limit approach tracks overage as "Additional Charges" — credited to the Invoice User if one is set, or left as unallocated revenue if not. Either way, the attorneys who actually worked the overage hours receive no compensation credit for it. And because the adjustment is an invoice line item (not a standalone fee), it doesn't appear on the Fixed Fees page and there's no way to reassign or fix it after the fact.
When to Use It
Your firm uses compensation reporting and needs clean attribution
You want to decide selectively which entries should be billed hourly
The client needs to approve additional billing before it appears on an invoice
You want to control the narrative—reaching out to the client proactively rather than surprising them with an overage line
Recommended Workflow: Weekly Profitability Review
The most effective approach combines proactive monitoring with the "convert to billable" method:
Step 1: Review Fixed Fees Weekly
Navigate to the Fixed Fees page and sort or filter by profitability. Identify any fees that are approaching or have crossed your unprofitability threshold.
Step 2: Identify At-Risk Fees
Look for fees where:
Profitability is below your target (e.g., under 20%)
Logged hours are approaching the point where the fee becomes unprofitable
The fee is ongoing and scope may not yet be complete
Step 3: Communicate with the Client
Before making changes, reach out to the client:
Explain that the engagement has exceeded the original scope
Confirm whether work should continue and how additional time should be billed
Get approval for hourly billing on the overage work
Step 4: Convert Overage Entries to Billable
Once the client approves:
Open the fixed fee
Go to the Time Entries tab
Select the entries that are driving unprofitability
Click Make Billable
The selected entries convert to billable hourly time
Step 5: Bill the Matter
When you generate the invoice:
The fixed fee appears as a flat-fee line item
The converted billable entries appear separately at their hourly rates
Both the client and your compensation reports reflect the correct billing structure
Side-by-Side Comparison
| Hour Limit + Limit Rate | Convert to Billable |
When configured | At fixed fee creation | Before billing, as needed |
Automated? | Yes — overage calculated at invoice time | No — requires manual review |
Comp reporting accuracy | Overage goes to Invoice User if set, otherwise unallocated; workers get no credit either way | Overage flows through hourly billing; credit goes to workers |
Client communication | Overage may appear automatically | You control the timing and message |
Flexibility | Uniform cutoff | Selective, per-entry control |
Best for | Simple arrangements with upfront agreements | Firms using comp reporting, or needing case-by-case judgment |
In Summary
Both approaches recover revenue when a fixed fee exceeds scope. The hour limit is simpler to set up but keeps overage work inside the fixed fee allocation model. Converting time entries to billable gives you more control and produces cleaner compensation reports.
If your firm uses compensation reporting, converting Fixed Fee time entries to billable is the recommended approach. It ensures each entry flows through the correct billing and attribution path—giving you accurate reports without manual adjustments.