Legal Ease Blog

If Clients Aren't Demanding Alternative Fees, Should Your Firm Pursue Them?

Earlier this month, Larry Bodine did a piece on the Law Marketing Portal about alternative fees entitled, "Study Finds Weak Client Demand for Alternative Fees," in which he talked about the Center for Competitive Management (C4CM)'s  2010 Alternative Billing Benchmarking Study.*

According to Bodine, the study reveals that the recession is the driving force behind the move toward alternative fees. Many firms have begun implementing some form of alternative fees, but apparently clients aren't taking to them as anticipated. Bodine opines that when the economy turns around, interest in alternative fee arrangements will wane once again.

Reportedly, one of the reasons clients have not embraced alternative fees is that they are not well understood by either clients or lawyers. The C4CM report listed a number of obstacles to implementing alternative fees from the perspective of law firms and law departments, including lack of historical data to evaluate whether alternative fees would be profitable, lack of 'buy in' from key firm personnel, lack of skills to implement alternative fees and the ease of continuing with the existing system, which is configured for hourly billing and compensation based upon hours.

From the law department perspective, obstacles included a lack of incentives for in-house personnel to use alternative systems, difficulty in comparing costs among different firms if others are billing hourly, concern about whether firms billing under alternative arrangements would be as accountable as those billing hourly, and again, the difficulty of altering existing systems and measurements which were based on an hourly system.

What does this mean for lawyers and law firms? Should you abandon the idea of alternative billing? Not necessarily - especially for smaller firms and those working with clients who don't already have well-established measuring systems based upon hours or who aren't using multiple firms.

Implementing alternative pricing arrangements isn't easy - it takes time and effort on the part of the firm to understand the needs of the client, to develop a fee structure that makes sense for the firm and the client, and to adequately explain that system to the client based upon the client's needs.  The client needs to understand why it helps them to agree to alternative fee arrangements. The firm needs to take the time to develop the skills to price effectively - as with anything new, lack of skill will be an obstacle until the skills are developed.

Where many lawyers fall short is that they fail to understand alternative fees themselves and/or a fail to adequately explain not only the alternative fees, but also the accountabililty and other advantages or incentives for clients to agree to these alternatives. 

Clients who are used to hourly billing arrangements may be understandably suspicious when a firm attempts to introduce a new fee structure - especially if the fee structure was not one requested or demanded by the client. The client's natural reaction will be to second guess the firm and assume that a change in fee arrangements is one which will be benefiical to the firm, but not to the client.

Firms seeking to implement alternative fee arrangements must anticipate this natural suspicion. They need to develop a system which builds accountability into the fee arrangement and allows for open communication with the client. They need to be ready to explain why these arrangements will be beneficial to the client.

Just because clients aren't demanding alternative fees doesn't mean that they won't accept them, or even become champions for them. After all, nobody 'demanded' the iPad, but consumers are clamoring to get their hands on one. If lawyers can anticipate the needs and concerns of clients and address them in a meaningul way, acceptance of (and perhaps even demand for) alternative fee arrangements may increase.

Indeed, the C4CM study found that more than 90% of firms reported that they are maintaining or increasing profitability under alternative billing arrangements, and nearly 1/3 of firms participating in the survey noted increased requests from clients for alternative billing arrangements. If 1/3 of your clients were asking for alternative fee arrangements, would it be worth your while to develop the skills and systems to support them?

*hat tip to Lisa Solomon, legal researcher and writer extraordinaire, for pointing me to Bodine's article.

 

 

ABA Techshow 2010 - Part II - The Conference

My last post was the beginning of my review of this year's ABA Techshow, held annually in Chicago. Here are some of my thoughts on some of the sessions I enjoyed most at this year's conference:

Niki Black and Matt Homann presented on Managing Your Online Presence: The Care and Feeding of the Online You. The session covered choosing (and using) a blog or Web site as your online "home base;" utilizing social media sites like Facebook, LinkedIn and Twitter to connect with clients and build your professional footprint; magnifying your online presence by distributing your existing content seamlessly to multiple places online and monitoring and managing your online reputation. Your existing clients will be more informed, and your prospective clients will be more impressed.

Black reminded the audience that social media is both personal and professional. You probably don't stick strictly to business issues when speaking with your clients in person or by telephone,  and it's the same with social media. Getting personal strengthens the connection. 

Although many people are using Facebook personally, some lawyers are afraid to use Facebook. Matt Homann suggested that even if you aren't on Facebook personally, your business should be.

Matt Homann advocated liberal linking on sites such as LinkedIn to expand your network and sees no downside to linking with many people,but I don't necessarily agree. I want my LinkedIn connections to be people I know something about - if someone asks about a connection, I want to be able to respond with meaningful information.

Homann also suggested that lawyers go to their clients' conferences and use social media tools such as Twitter to get the word out about what was happening at those conferences, therby making you *the* source of information for others in the same business or industry.

Despite all of the new tools and technologies, Homann believes that the telephone is still the most important social networking tool there is. He advocates picking up the phone to have meaningful conversations with clients, potential clients and connections.

Finally, Matt Homann wanted lawyers to remember that social media is no different than other networking or spending time with clients - it's just that the interactions take place online.

One of the best things about this session was that Black and Homann didn't always agree; too often these sessions present only one point of view, and it was refreshing to hear some spirited disagreement and debate.

(I missed Carolyn Elefant's session with Niki Black on social media and your online presence, but you can catch the tweets from Legal Typist's Andrea Cannavina here).

Ari Kaplan's Keynote - The New 'Big Bang' - The Convergence of Technology and Marketing

Ari Kaplan presented the Keynote address during lunch on day 1 of the conference. His energetic presentation about marketing was one of the highlights of the day. His tips included:

• Self promotion is not about promoting yourself; it's about finding ways to promote and find opportunities for others
• Empower others with resources
• Brand to strangers, but market to friends
• Your marketing doesn't have to be perfect; it just has to build momentum

How to manage your email

Inbox "Ninjas" Xavier Beauchamp-Tremblay and Barron Henley presented on ways to de-clutter your inbox. This is one of my favorite topics since we're all overloaded with email and I was hoping to pick up some new tips for my clients and myself.

• If you tend to hit the 'send' button too quickly, or if you often regret sending an email once it's too late, you can set a rule so that your email will stay in your outbox longer before it is sent.
• The Outlook plug in Simplyfile got a lot of play during this conference - I heard it mentioned in several different sessions. Simplyfile is an intelligent filing system for Outlook messages.
• Use texter software from Life Hacker - Text substitution can create canned responses or use abbreviations for longer text to save time and keystrokes
• Need to find contacts quickly in Outlook? Use the F11 key

60 Tips in 60 Minutes

I love the fast-paced "60 minutes" sessions, and I always pick up something useful, including:

• Use Maestro to mass convert PDF to text-searchable PDFs
• Create a cone of silence - Turn everything off sometimes - stop being interrupted (especially by technology) so you can focus
• Go to netlingo.com to find the acronyms for texting (this is especially helpful if you're trying to decipher your teens' text messages)
• Use a passphrase instead of a password for better security
• Check out Agreedate.com to coordinate meeting times - it even integrates with Outlook
• Use thumbnails in Acrobat to add/remove/reorder pages - just drag and drop
• Upgrade your Google search - limit your search by time, use the Wonder Wheel and the timeline
• Customize the Quick Access toolbar in Office 2007 for better functionality
• Try Kofax desktop scanning software. Scan to PDF, OCR, scan to Word and others for $49/seat
• Use the postal service website (www.usps.com) to find zip codes for a particular address; you can even look up the county for easy court filing.
• The forgotten attachment detector (in beta) from MS Office Labs will warn you before you send the email without the attachment
• Use PR Newswire for press releases to help get inbound links to your site
• TripIt will help you plan your trips and keep all of your travel information in one place. Investing in TripIt Pro will get you announcements of flight delays, gate changes - great travel itinerary tool!
• Get rules, state and federal laws on your smartphone so you don't need to carry the books to court from www.lawpda.com
• Use Google Advanced search link to do a domain filter search to find something on a specific site
• Use vdownloader or zamzar to convert online video to MPEG or AVI
• Create your own YouTube channel for your firm and start doing lawyer videos

Everything You Ever Wanted to Know About Crackberries

Toby Brown and Dan Pinnington went through an exhaustive list of Blackberry tips, shortcuts and applications. They recommended Google maps mobile, rather than Blackberry maps, and showed the audience how to use their Blackberries as bright flashlights (by changing the video camera setting to 'always on' for the flash) - great for emergencies or in dark restaurants.

They also recommended downloading your emails in full before you get on your flight so that you can read them without your wireless connection on. Pinnington reminded Blackberry users that they can change the Blackberry connection status to flight mode to work on their Blackberries without the wireless.

Recommended applications for Twitter on the Blackberry were UberTwitter and OpenBeak (formerly Twitterberry). Vlingo was a recommended voice command application, and Bighand mobile or Speakwrite applications can turn your Blackberry into a dictation unit.

If you don't want to tote the Federal Rules to court, try the law pod application for the Blackberry; keep time on the road with DET InHand, BizTrackIt, My Timesheet or Time and Expense applications.  

Finally, while there's been a lot of buzz about how insecure the iPhone is, your Blackberry won't be secure unless you remember to enable passwords.

60 Sites in 60 Minutes

This is the traditional Techshow closing session, and it is always one of the most popular. You can get the complete list on the Techshow site here, but here are some I was able to jot down during the session - maybe these will whet your appetite:

• Presentationzen.com will help you do better presentations
• Office.microsoft.com is a fabulous site for Office training and templates
• Need to learn about software? Try Lynda.com
• Instapaper.com: send stuff you want to read there when you don't have time to read it all now
• Google local business: great free tool
• Makeuseof.com - Practical information about technology
• Addicted to apps? Try 148 apps site
• We need better filters for information: Try techmeme.com
• Free online photo-editing: picnik.com
• Lawyerist.com (a site to which I contribute) was recommended for lawyers of all ages and experience levels, not just young lawyers
• The legal business development blog contains lots of info about project management and alternative fees: adverselling.typepad.com
• Yet another great scheduling tool: Doodle.com
• For more information about legal project management, try Lexician - lexician.com/lexblog
• visuwords: online graphical dictionary
• Mikogo - share your screen in a teleconference - up to 10 participants for free (arrange the call separately)
• Blog: Above and Beyond KM (knowledge management)
• Typography for lawyers- make the right impression
• Legistalker - keep up with politicians

As you can see, as always, Techshow was packed with useful Technology information. My last (and final) Techshow post will include my overall review of the entire conference experience, with this year's pros and cons.

ABA Techshow 2010

Techshow, the ABA Law Practice Management section's annual legal technology conference, is one of my favorite conferences to attend every year, and this year was no exception.

The Techshow experience started early this year, with Ignite Law, an event sponsored and hosted and produced by Matt Homann of LexThink and Joanna Forshee of Inside Legal. The event featured 16 speakers doing 6 minute presentations apiece on the future of law practice (although I think Tom Mighell's presentation was actually 10 minutes squeezed into 6 because he talks double-speed - perhaps that is because he's used to listening to podcasts on double speed).

Unfortunately, I was late for Ignite Law because my plane arrived shortly before the start time. Luckily, the entire event was recorded, and you can see each of the presentations in full on video at the Ignite Law site. If you want to learn more, check out the ABA Journal's coverage of Ignite Law, which also references additional links.

Although the whole event was great, some of my favorites from the Ignite Law evening were:

Larry Port (of Rocket Matter)'s presentation on the importance of project management for lawyers

Tom Mighell, who reminded us that law school doesn't prepare lawyers well for the practice and suggested a model more like medical school, along with actual education (and bar exam testing) on practice management skills/issues.

Carolyn Elefant's discussion of innovation and how small firms can compete with big firms.

Doug Sorocco discussing slaying the "beast" mentality - (although I wholeheartedly disagree that all consultants are useless).

Clio's Jack Newton, who told us that everything we need to know we can learn from Zappos and reminded us about having a service culture.

After Ignite Law, it was on to the conference itself, which will be covered in my next post.

Do Your Clients Have Good Reason to Hate You or Your Law Firm?

Want to know what entrepreneurs and business owners hate about lawyers? If you don't already know (or can't guess), take a look at this article: Top 10 Reasons Why Entrepreneurs Hate Lawyers from Venture Hacks by guest author Scott Edward Walker of Walker Corporate Law Group.

There isn't much that comes as a surprise in this article. Most lawyers are well aware that these are the common complaints made about lawyers, and they claim that those complaints don't apply to their practice, and yet those complaints persist. Why? Is it just a misperception or are lawyers still failing in these areas?

Take a good, hard look at your own practice - can you improve in any of these areas?

Let's look at each one in turn:

Failure to communicate clearly
I blame law school education, at least in part, for this one. Law school education consists in large part of reading statutes and case law for precedent, and some of these precedents are years, decades and sometimes even centuries old. The language is often stilted and outdated. Lawyers learn this language. And while it is necessary to learn the language of the trade and the legal 'jargon' that goes along with it, most lawyers never learn how to translate that language back into plain English. That leads to a failure to communicate clearly with clients who usually haven't been to law school.

Are your documents and client communications written in 'legalese?' Can you simplify them to make them easier for your clients to understand? Can you provide clients with explanations of legal terms or shortened, "Cliff's Notes" versions as a guide?

Failure to keep clients informed
You're busy. You've got a lot on your plate and a lot of clients to juggle. The reality of legal practice is that there may be times when nothing is happening on a particular client's matter - you may be waiting for your adversary to file a response or for the court to schedule a conference or render a decision, for a third party to provide information or for an investigation to be conducted and a report rendered. The client's matter may have come to a complete standstill as a result. You know that this is normal and to be expected, but your client doesn't.

This may not be your only matter, but it is the client's only matter - and the client has a lot riding on it. Are you keeping them informed, even when nothing is happening? Are you reassuring them that everything is moving along as anticipated? Does the client know you haven't forgotten about them?

"Overlawyering" or taking a one size fits all approach
Every client and matter is unique, if only because each client comes to you with a different background and different expectations. Clients are becoming more demanding, and they don't want to pay lawyers for a commodity approach, particularly when the work or services being provided is not applicable to the client's specific situation.

Discuss your approach with the client. Take them through the steps that you believe are necessary to reach the client's goals. Make the client part of that process and get their buy-in. If you can't explain to the client why a particular task, approach or document is important to the client's desired outcome, it might be time to reassess whether you're appropriately meeting the client's needs, or whether you are performing unnecessary work.

Being bad listeners
Lawyers complain that clients don't listen to their advice or don't pay attention to what they're being told, but too often the lawyer is the one exhibiting poor listening skills. Most lawyers genuinely want to help their clients, but in their rush to be the hero, save the day and provide the client with "the" answer, they fail to listen to the client's real needs, miss the underlying problems or opportunities, or misunderstand the client's expectations and goals.

Instead of assuming that you know the answer to the client's problem, take a step back and listen to what the client is saying. As the Venture Hacks article points out, although technology tools can be helpful, they can also get in the way of good listening. Don't multi-task - put that Blackberry or iPhone away during meetings, negotiations or any other face to face contact with clients (or with anyone else, for that matter).

Giving the lion's share of the actual work to younger, less experienced lawyers
Although one of the ways law firms make money is by leveraging their associates, leveraging can go too far, particularly when the leveraged approach results in clients paying lawyer's fees for work that can be done by non-lawyers, when the value of the work performed is outweighed by the fee charged, when double-billing occurs, when the client is given the impression that their matter is being handled by a senior lawyer but the bill reflects only work by junior lawyers, or when it becomes clear that the senior lawyer is not well-informed about their matter.

Be honest with your clients about who will be working on their matter, when, and why. If a particular matter can be competently handled by a junior lawyer and the client will save money and not sacrifice their goals, communicate that to the client. But remember that training is the job of the law firm, not the client. 

Wasting time on insignificant issues
Most lawyers will say that issues the client thinks are insignificant may not be. But if a client is complaining that the lawyer is spending too much time on insignificant issues, it's clear that the lawyer has failed to explain why the issue is not insignificant and how it relates to the client's goals, wants and needs. The impression this leaves is that the lawyer is merely trying to drive up the bill.

(It's also worth noting here that the time expended only becomes an issue if the lawyer is billing by the hour, and this highlights one of the problems with hourly billing.)

Does your client understand why you're focusing on a particular issue? Can you articulate whether the work you are performing for the client relates to the client's underlying goals and anticipated outcome? Is the work appropriate for this client? Has the client consented to it?

Treating clients like files (or revenue generators) rather than people
Whether your practice is a consumer based or business to business, you're dealing with people. Your contacts within the business are people. Your bills are reviewed by people who will use their judgment to determine whether you have provided value and whether your bills should be paid.

Don't just give lip-service to your clients and claim to care about them - show them that you do care about them and their businesses. If you don't get excited about what you're doing or who you're doing it for - if you're just faking it - your clients will see right through you. If you're indifferent towards your clients, they'll be indifferent towards you and your firm. That leads to dissatisfied clients, unpaid bills, and loss of business.

Charging high fees
What this complaint really boils down to is that clients don't understand your fees, why you charge them, and most importantly, how those fees relate to the value of the services you provide and why they are necessary to reach the client's goals.

Can you do a better job of explaining value to your clients? Is your fee structure built in such a way that the value is communicated to clients on a regular basis? Are your fees related to the value of the service you provide, or are they based on some other arbitrary calculation? Can you demonstrate why your fees are a 'good deal' for your clients?

Being unresponsive
This one gets heard over and over, and with the technology available today, there is even less of an excuse than ever before for being unresponsive. Clients have a lot invested in their matters. At times, their concerns may seem overblown or unnecessary, but that doesn't change the fact that they are concerned and that they want their questions answered and their minds put at ease.

Return phone calls and emails promptly. If you want clients to use or avoid a particular form of communication, make that very clear up front and remind clients throughout the engagement. Make sure you set expectations about communications from the outset and stick to them. If you can't get back to a client right away, have someone else get to it, explain why you can't get back to them and try to resolve their problem or give the client a specific time when you will contact them. If you're a solo, return calls at night if necessary, just to let the client know you haven't forgotten about them. Let them know when and how they can connect with you.

Spotting issues and failing to provide solutions
This is another problem exacerbated by the legal training lawyers receive. Lawyers are taught to spot issues, but rarely, if ever, are they trained or even encouraged to find solutions. While it's important for lawyers to be able to point out the potential pitfalls or hidden minefields facing their clients, it is equally important that lawyers work with clients to reach the client's desired resolution.

Lawyers who can innovate and work with clients to brainstorm solutions or creatively structure deals to reach a resolution, rather than merely telling the client why what the client wants isn't possible are lawyers who will continue to be in demand, who will be able to charge premium rates and who will develop a loyal following.

What is your experience with these 10 issues - are they simply misperception or are they real? What are you doing to ensure that your clients don't have these complaints about you and your firm?

ABA GP/Solo National Solo and Small Firm Conference 2009

Last week, I attended the 2009 National Solo and Small Firm Conference put on by the American Bar Association's GP/Solo Division. It was another opportunity to catch up with old friends, meet some 'virtual' friends in person, and make new connections who will hopefully turn into friends and colleagues in the future.

I was privileged to spend some time on Saturday evening with some of the General Practice, Solo and Small Firm Division leadership, thanks to the generosity of the folks at the Total Practice Management Association (whose president, Kevin Chern, was my co-presenter on Saturday afternoon). Without exception, the GP/Solo leadership demonstrated their commitment not only to their own practices, but to other solo and small firm lawyers. And I think we were all especially charmed by the two fabulous boys of the division chair, James M. Durant III and his wife Karen. (The boys stole the show at dinner, and can carry a conversation better than a lot of lawyers I know).

Later in the week, I'll summarize some key points from some of the sessions I attended, but in the interim, check out Alan Klevan's post, Law Practice Management Tips - So Cal Style.

And my friend, Lisa Solomon, was generous enough to allow me to post one of her photos from the conference here. I'm on the far left with Alan Klevan, Lisa Solomon, Chelsey Lambert from Total PMA and Niki Black.

If you want to learn more about the CLE from the conference, you can access this year's ABA GP/Solo NSSF conference schedule and materials here.

Suddenly Solo? An Opportunity to Introduce Fixed Fees - Part II

In my last post, I discussed the opportunities for solos to begin using fixed fees in their practice, the advantages for doing so, and the dangers of basing fixed fees on hours. But how do you introduce fixed fees to clients, and what do you do if the scope of the engagement changes during the course of your representation?

Every problem with billing, fees and payment relates back to the initial consultation with the client and how well you've defined the scope of the project and communicated value.

The initial consultation

The foundation for every good attorney client relationship is laid at the time of the initial consultation.  All clients want to know what they’re paying for and ensure that they are receiving value. The client’s perception of value is driven by their expectations, which must be explored during the initial consultation with the client.

At the initial consultation, you’ll want to:

• Identify the results the client wants to accomplish
• Establish the value of the engagement and of your services based on the client’s goals and objectives
• Define the scope of the engagement
• Identify the variables or occurrences that might change the scope of the work
• Set the tone and establish billing practices and procedures
• Delineate fees up front
• Document the scope of work, method of calculating the fee and the payment terms in writing
• Explain the use of ‘change orders’ or supplemental service agreements when the scope changes

Providing the client with options

Options allow clients to participate in setting the fee by providing the client with choices about the service to be provided and, as a result, some control over the fee to be charged.

Examples of options include:

• Packaging or bundling some services together at a different fee than the services would be priced separately
• Providing additional services to the client at a premium fee

Change orders and supplemental services agreements

Many lawyers fear fixed fee arrangements because they are afraid that they will under-estimate the amount of work required, or that unforeseen circumstances will arise which were not originally contemplated by the attorney, and therefore were not factored in to the original fee calculation. For example, additional witnesses who must be deposed; unanticipated motion practice or extensive documentary discovery. In those instances, a supplemental services agreement which describes the additional scope of services and additional fee can be prepared, and accompanied by an additional fee quote. These issues can be alleviated by the use of supplemental services agreements.

By their very nature, fixed fee agreements imply a limited scope of work. Clients must therefore be educated about the kinds of occurrences or variables that may result in additional services or fees. Be clear about the scope of work and provide examples of the kinds of variables that are likely to result in a change order or increase in the fee.

The change order or supplemental services agreement describes the additional scope of services to be provided and resulting additional fee. The decision to provide additional services for an additional fee must be based upon the client’s needs and stated goals. Articulate the changes in your fees by demonstrating how the additional services are tied to the services requested or outcome desired by the client – not by the additional time that will be expended or the additional work that must be done by the lawyer.

Success will depend on how well you’ve defined the scope of the engagement and the variables that might affect the fee up front.  When those circumstances do arise, the client won’t be surprised.

A change in mindset

Lawyers who are used to the hourly billing system have been rewarded for spending additional hours to analyze every angle and explore every possibility – even where those efforts resulted in diminishing returns for the client. Under a fixed fee system, the lawyer and client together will have to analyze the efficacy of undertaking such tasks and the fee for doing so before the work is performed. 

Under a fixed fee system, the lawyer will be required to manage engagements in a different way and focus on allocating resources, including staff (if any) in a way that makes sense for the engagement and in terms of the client's stated goals and objectives and the value of the engagement to the client.

The goal of fixed fees isn’t necessarily to make MORE money than you would make on the same matter billed on an hourly basis. The goal is to create a fee structure that your clients can understand and buy into, that doesn’t create conflicts between lawyer and client, and that rewards lawyers who can manage well, staff appropriately, resolve disputes expeditiously and work efficiently. Most of all, the goal is to create value for the client by working effectively - by focusing on what matters most to clients.

Fixed fees eliminate a lot of the traditional conflicts between lawyers and clients that are inherent in the hourly billing system, and focus on the knowledge, skill and ability of the lawyer in achieving the service and outcomes a client seeks, rather than focusing merely on hours expended. 

Trial and error

It is worth noting that no fee structure or billing system is perfect, and there are obstacles to be overcome regardless of the billing method used. Unscrupulous attorneys will find a way under any fee structure to cheat the client, and some clients will be unwilling to pay even reasonable fees.

Problems such as these cannot be solved by changing a lawyer’s fee structure – they must be resolved by vigilant clients seeking information and explanations from their lawyers, by conscientious lawyers educating their clients about the process, the value and benefits their work provide and their fee structure, and by both lawyers and clients being selective in deciding with whom to do business.

Working with alternative fee structures and setting fixed fees is not necessarily 'easy.' It will involve trial and error and a lot of planning and defining goals and variables up front. Change is never easy, but billing hourly isn't 'easy' either - just look at all of the problems and complaints it creates.

Increased competition is likely to drive down prices, particularly in this economy. Clients will be focused even more on value than they have been in the past. Lawyers who can provide clients with more certainty about their fees have a built-in value proposition.

Might shifting to a non-hourly billing structure mean a loss in the short term? It most certainly might. And it might result in less revenue per engagement. But proper project management combined with innovation may result in a long term gain, increased client loyalty and a better client base, (or even one of the above), it’s still probably worth it. Is the fact that it may be 'difficult,' (especially at first) to implement a reason to give up on alternative fee structures?

Alternative fees are going to become more and more prevalent. Lawyers are going to have to learn how they can use them, or risk losing clients. If you’re ‘suddenly solo,’ why not stay ahead of the curve and start implementing some of these alternatives now?

Need help? Contact me to find out how I can help you set up a fee structure that works for you and your clients.

Suddenly Solo? An Opportunity to Introduce Fixed Fees

Whether you are ‘suddenly solo’ due to downsizing, law firm collapse or rescinded offers or you are a newly-minted solo just out of school, one of the biggest challenges of your new solo status will be differentiating yourself from others in your field. A second challenge is to determine your fees. Those two challenges combine into one powerful opportunity - offering pricing options that others have not yet considered or are afraid to implement can set you apart.

Large firms were built and staffed and are used to working on an hourly basis. Adapting their processes, staffing and procedures to a non-hourly system can be a herculean undertaking. Not so for the solo. As a solo, you don’t have partners, a management team or others to argue with about experimenting with fixed fees and other alternatives; you’re more nimble and you can be more flexible with pricing options. But if you have previously worked under the hourly model, particularly with a big firm, you will have to do some work on changing your mindset to make fixed fees work. You will need to stop focusing on hours as a measure of your fee, your productivity and your value.

One thing is clear – clients don’t actually care about your billable rate or the amount of time you’ve spent on a matter. What they care about is the value they’ve received and the total cost of legal services.

The concern about value and the ability to compare lawyers and legal services was the initial reason for a switch to the billable hour. Unable to quantify the value a lawyer provided or to compare one lawyer’s skills to another, clients sought a uniform method of billing and hit upon the billable hour, thinking they could compare lawyers by comparing hourly rates and the time spent on the matter.

Among the (many) problems with the billable hour system, however, is the inability to compare total legal costs until the matter has been completed and the work done. Budgeting is difficult under an hourly system. And comparing the total cost of legal fees is difficult, since clients are not using two separate lawyers on the same matter – it’s pure speculation whether another firm or lawyer would have spent more or less time on a particular matter.

But my clients want hourly billing

Although clients care about results and overall legal costs, many lawyers complain that their clients are not requesting – and indeed may be resistant to – alternative billing arrangements. But as Ron Baker, “guru” of value pricing for professionals points out, buyers (in this case clients) are not the ones who drive pricing decisions – sellers (lawyers) are. It is incumbent upon you, as the lawyer and expert, to clearly and concisely demonstrate the value of your fee structure to clients. Do you think your clients always know what they want or need?

Creating a fixed fee practice

Pricing based upon fixed fees allows the client to make an informed decision about whether legal services are affordable before those services are rendered. There are fewer surprises for the client, the client can budget for legal fees in advance (and is less likely to question a bill they’ve agreed to in advance), cash flow is improved, and fewer resources are expended to follow up on outstanding bills and accounts receivable.

Even if the fee must be altered from the original estimate due to unforeseen circumstances or additional services which must be provided, if you have articulated the factors that would affect the fee and communicated them to the client, there will be less resistance to the increase. Clients are more likely to cooperate, to communicate with you and provide necessary information if they aren’t worried that every contact with you costs them more money.

Fixed fees are distinguished from flat fees in that a flat fee would be the same for every matter, while a fixed fee is determined and quoted in advance, but on the basis of variables, including:

• The client
• The anticipated outcome
• The anticipated difficulty of the matter
• The client's values and priorities

Fixed fees should not be based upon anticipated hours, as this encourages reverting to hours as a measure of value. The advantages of using a fixed fee are wiped out because both lawyer and client will constantly be reviewing and reassessing the fee on an hourly basis. Similarly, capping the number of hours you will work for a client on a particularly matter retains the focus on hours and merely changes the way in which the client pays.

In my next post, I'll discuss what you need to cover with your client in the initial consultation and how to deal with unanticipated circumstances or changes in the scope of the engagement.

Want to create your own fixed fee structure? Contact me to see how I can help.

How do you talk to your clients about fees?

When my clients tell me that they're having difficulty getting paid or that they are having problems with an alternative billing arrangement with their clients, the first two questions I always ask are:

"What did you tell your client about your fees when you first met with them?"

and

"What does your engagement agreement say about this issue?"

Almost every problem related to fees, billing or getting paid relates back to the original meeting with the client and how well the fee arrangement was explained.

Lawyers are now beginning to experiment with alternative billing arrangements, and that means that they need to change the way they speak to clients about their fees. Under an hourly billing system, the client is quoted an hourly rate. Sometimes a client will request an estimate of the total legal fees that are likely to be expended, but many clients won't. Even if an estimate is given, when the estimate is exceeded, the bill will reflect the number of hours worked on the client's behalf. While this may be 'easy' for the lawyer to explain and to demonstrate to the client, it opens up discussions about why certain tasks took so long to perform, or why the lawyer devoted so much time to a specific item. These conversations don't occur until after the work has been performed, and they place the emphasis on hours, rather than on outcome and the services provided.

By contrast, with alternative fee arrangements clients are likely to ask more questions at the outset, if only because they are used to hourly billing. Some clients may be concerned that the move away from hourly billing is a move made solely for the lawyer's benefit, and that the client may ultimately pay more for the same services. Other clients just naturally want to understand what they're paying for and how much it will cost them.

Too many lawyers are afraid to talk to clients about fees; they rush through the discussion because it's uncomfortable and they are afraid that the client won't accept the fee. This is a missed opportunity. Any discussion about fees is an opportunity for the lawyer to discuss the value of the services the lawyer is providing and to clarify the client's goals and objectives.

One good way to talk to clients about fees is to use written tools such as pricing sheets and flow charts which can help clients understand the steps or stages of the process, the value each task or stage adds to the engagement and how it relates to the client's goals, and how the fee relates to each task or stage in the process. These tools can also help the lawyer explain the variables that may affect the fee and why some engagements are more expensive than others - in terms that the client can relate to, rather than in terms of the number of hours expended by the lawyer or law firm.

Written flow charts and pricing sheets not only help the client understand the process and the value the lawyer provides, but they discourage negotiating on price and requests for discounts. Psychologically, when the client sees a written price sheet, the prices seem more concrete and less 'made up.' And written price sheets can be helpful for new lawyers, solos and lawyers in small firms who might be inclined to negotiate against themselves or immediately discount their prices.

How do you talk to clients about fees? Can you utilize any of these tools to improve the fee conversation with your clients?

If you want to improve the way you speak to clients about fees, or if you're interested in implementing alternative pricing arrangements in your firm but don't know where to start, contact me to see how I can help.

Will alternative fee arrangements be profitable for lawyers?

Last week’s Legal Business Development Blog entry was part 16 on a series on alternative billing, entitled, “Alternative Fees (Part 16) - Win-win or win-lose?” The article opines that firms who are talking about their success with alternative fee arrangements may be over-stating their success, particularly in the short term.

The article suggests that some who have begun using fixed fees are not seeing additional profits above their hourly work. There was some discussion on one of my legal list serves last week pointing to this article as an example of why fixed fees won’t work, particularly in litigation. I’m not sure that conclusion was valid – even based on this article.  There seems to be a lot of information missing. For example, how are these firms calculating profits? Are they basing profits on hours? Are these firms staffing and working files the same way for hourly work as for fixed fee work? Have they implemented project management, technology and other productivity and efficiency boosting measures? Are their calculations taking into account the benefits of fixed fees with regard to time records and billing and collections issues?

When firms say that most of their non-hourly work is ‘less profitable’ than their hourly work, are they comparing non-hourly and hourly work on the same kinds of matters or on different kinds of matters (are they comparing apples to apples or apples to oranges)? What kind of fixed fee or non-hourly arrangements are we talking about here? None of these issues seems to be directly addressed in the article.

It doesn’t surprise me that the article indicated that the larger the firm was, the less profitable the reported non-hourly work. Large firms were built and staffed for and are used to working on an hourly basis, and they may not have adapted their processes to a non-hourly system.

It’s also telling that the article points out that, “Lawyers have been rewarded for their entire careers for putting in extra hours to analyze every risk from every possible angle.  Most lawyers will have a hard time delivering the quality they are comfortable with when they must work within hourly limits.” Placing ‘hourly limits’ on a matter isn’t the same as creating a true non-hourly billing system and fee structure - it’s merely capping the hours (or capping the fee and then trying to fit that into an old hourly mindset). That’s trying to change only half of the system – the way the client pays, rather than changing the whole system, including the lawyer’s reliance on hours as a basis for value.

That same paragraph goes on to talk about expecting lawyers to be productive for a certain number of hours, and finding those goals unreachable if some work is billed on a fixed fee basis. But why should the firm care if a lawyer is ‘productive’ for 2000 hours a year unless they’re still stuck in an hourly mindset? (And I’d challenge the idea that lawyers are ‘productive’ for 2000 or any other specific number of hours a year just because they’ve previously billed that number of hours per year).

The goal of fixed fees isn’t necessarily to make MORE money than you would make on the same matter billed on an hourly basis. The goal is to create a fee structure that your clients can understand and buy into, that doesn’t create conflicts between lawyer and client, and that rewards lawyers who can manage well, staff appropriately, resolve disputes expeditiously and work efficiently. In addition, it eliminates a lot of the traditional conflicts between lawyers and clients that are inherent in the hourly billing system, and it focuses on the knowledge, skill and ability of the lawyer in achieving the service and outcomes a client seeks, rather than focusing merely on hours expended. 

As the article correctly notes, increased competition is likely to drive down prices, particularly in this economy. So whether you’re billing hourly or not, you may see clients who are seeking to pay less for legal services – unless you can convince them that the value of those services justifies the fee. In my opinion, that’s harder to do on a pure hourly system. But even if it isn’t, it may be unrealistic to compare the profitability of work this year to the profitability of work last year in light of today's economic climate. Blaming it on the fee structure doesn’t necessarily tell the whole story.

Working with alternative fee structures and setting fixed fees is not necessarily 'easy.' It takes trial and error and a lot of work and specific discussions with clients up front. Change is never easy.People are used to the hourly billing system so it seems easier, but is it really? Just look at all of the problems and complaints it creates. Hourly billing has its own challenges with write downs, write offs, and constant challenges to the amount of time a task 'should have' taken. 

Might shifting to a non-hourly billing structure mean a loss in the short term? It most certainly might. But if it results in a long term gain, increased client loyalty and a better client base, (or even one of the above), it’s still probably worth it. Is the fact that it may be 'difficult,' (especially at first) to implement a reason to give up on alternative fee structures?

If, as the article suggests, alternative fees are going to be more and more prevalent, lawyers are going to have to learn how they can use them or risk losing clients. In some cases, they may be ‘less profitable’ than hourly fees, but less profit is better than no profit - and for some firms, the amount of ‘profit’ that they were making on particular matters might not have been reasonable in the first place.

The Busy Lawyer's Guide to Success

The Busy Lawyer’s Guide to Success - Essential Tips to Power Your Practice by Dan Pinnington and Reid F. Trautz is one of the ABA Law Practice Management section’s newest books. This book is only 132 pages long, but it is packed with powerful insights and tips for your practice. It’s small enough to fit into any lawyer's bag or briefcase and it belongs in every one.

An easy read, the book is broken up into sections and provides short, to the point statements that can be implemented easily and effectively. If you choose one section (or even one page), take the tips to heart and take action, you’ll see a difference in your practice.

If you’ve ever attended ABA Techshow, you know that the ’60 tips’ sessions are among the most popular and well-attended sessions in all of Techshow. This book is like an extended version of one of those lightning-fast tips sessions. It’s broken down into these essential sections:

• Client Service
• Marketing and Client Development
• Technology
• Coping with Email (it’s such a pain it needs a chapter all its own)
• Making (More) Money
• Ethics & Professionalism
• Management, Operations and Staff
• Strategy and Planning

Yes, the book is short. It’s written that way on purpose. The authors, busy, active lawyers themselves, know how valuable a lawyer's time is. They know you don’t want a big heavy book that you aren’t going to have time to read anyway. They’ve dispensed with long explanations and extra verbiage and distilled the book and each of their tips down to its core. The result? You get a book filled with just the ‘good stuff.’ You don’t need to search it out – it’s there on every page. For those of you that want more, they’ve included a Learning More section which points you in the direction of other resources on these topics.

Creating a book that’s comprised just of those golden nuggets undoubtedly took an awful lot of editing. It’s often easier to write something long than it is to write something short, because the short takes more editing. Your words need to be more precise. So if you’re wondering whether this ‘little’ book is worth the ‘big’ price, think about how much time (which, unfortunately, for most of you still translates into billable hours) these two guys saved you by giving you only the good stuff.

Still don’t believe me? Perhaps this will entice you:

• Check out pages 25-28 for a step by step individual marketing plan that you can start working on today.

• To find out which are your highest and lowest value clients, use the client report card found on Page 65.

• Learn how to conduct productive meetings by incorporating tips from pages 94-96 and 102-105.

You can get your copy of the book through the ABA ($69.95 for non-members, $44.95 for LPM members), or you can pre-order it from Amazon.com for $44.07, but it isn’t available yet.