Make More Rain : alternative fee arrangements, pricing

Mastering the Basics of Alternative Fee Arrangements

MichelleStPierre — Wed, 31 Mar 2010 17:54:00 GMT

Rising client demand for alternative fee arrangements (AFAs) has forced an increasing number of law firms to move away from the hourly billing model. My colleague Norm Mullock, founder of Redwood Analytics and vice president of product strategy and innovation...(read more)

Around the Web - Business Intelligence

MichelleStPierre — Wed, 10 Mar 2010 17:57:00 GMT

Redwood's BI solution was recently mentioned in an article on Silicon.com called " Five things CFOs must do in IT after recession ." Mike Giles, financial director at international law firm SJ Berwin, a proficient user of Redwood's BI...(read more)

Bankruptcy Practices at Odds with the "Story of the Year"

BoYancey — Mon, 21 Dec 2009 17:48:00 GMT

Bankruptcy lawyers have been quite busy this past year, and firms have enjoyed exceptionally high billing rates for many pieces of work . This isn't surprising; in the wake of last year's economic crisis, many companies have sought protection...(read more)

Planning Concepts and a Sneak Peek at the LexisNexis Redwood Planning Application

MichelleStPierre — Thu, 10 Dec 2009 14:45:00 GMT

Planning Overview The LexisNexis Redwood Planning application is a sophisticated management tool that uses a firm's profitability model to look at client planning and alternative choices in the staffing and pricing of new matters as well as the consequences...(read more)

Opportunities Abound with Alternative Fee Arrangements

DerekSchutz — Tue, 04 Aug 2009 13:00:00 GMT

We've heard from a lot of clients recently on the subject of collections and cash flow. It seems like everyone is talking about it, probably because they are concerned that they are going to be caught on the wrong side of the equation. Having a fair amount of insight into the financial statistics of more then a few law firms, I have to say that I definitely understand why law firms are nervous. I, and others, have written numerous articles on the dangers of aging inventory and the issues of poor cash flow management. In my job as a consultant I have advised clients with these problems in their firms' business models. That part is easy. The part that is much harder is coming up with viable solutions. Telling law firms to simply bill and collect faster is, well, too simple. Sure a firm can more often then not send bills out the door faster, but how do you improve the pace of collections?

...(read more)

Alternatives to the Billable Hour

Admin — Tue, 18 Nov 2008 21:30:38 GMT

For years, there has been much talk, and decidedly less action, on “alternatives to the billable hour.” GC’s say they want this, and firms say they are willing to provide these options, but neither side tends to “walk the walk” in a way that matches up with their stated intentions. We think there are a couple of key reasons for this:

1. On the GC side, as much as companies are interested in reducing costs, there is little creativity or interest in crafting “win-win situations.” There is clarity in the billable hour, and with that model, less concern that firms will be leaving money on the table that ends up in law firms’ pockets.

2. On the law firm side, firms quite simply have trouble managing to a fixed price or blended rate. It takes people skilled at active management and estimation, which only comes with experience. Firms often always lose money the first few times they try these types of arrangements, making them “gun shy” about doing it again.

The result of the above two issues is that the billable hour continues to dominate, despite its’ being a disincentive to efficiency on the firm side, and an inexact way of predicting legal expenses for clients.

In these less-than-robust economic times, both sides should take a harder look at the pricing models that exist currently for legal services. The most obvious issue, implicit in both of the above-stated problems, is one of trust, which is borne out of relationships and experience. As we all know, trust is a key component in the long-term success of any client/law firm engagement, and especially on one using a pricing model other than the billable hour.

On the law firm side, the more firms can accurately understand the value to the client they are providing for various types of work, the better they can accurately assess the appropriate work effort and the price the company is willing to pay. Over time, the combination of these 2 things can be used to accurately price the work profitably, based on staffing needs and their associated cost.

On the client side, the client has to understand that the law firm is a business too, and requires a margin on its work for it to desire to continue the long-term relationship. The greater the clarity into what the client bottom line is--- whether total cost, expense predictability, outcome, or some combination—the better the firm can be at pricing the work in question.

There are many tools available to law firms (such as Redwood Analytics’ Matter Planning Tool) to help firms price out blended or hourly rates, with multiple scenarios and sensitivities. These are a key piece, from the firm side, of understanding how leverage and pricing affect profitability. However, it is the back-and-forth between the client and firm that ultimately has the biggest impact on alternative pricing arrangements. Firms must understand and respect clients’ priorities and their relative importance regarding legal services, and clients need visibility into firms’ bottom line as well. This give-and-take, and both sides’ commitment to long term success of the relationship, will be what make alternative arrangements succeed. Given rate pressures, clients’ general dissatisfaction with legal services, and a more challenging economic environment, firms would do well to begin to engage their clients in these conversations, if they haven’t already done so.

--Bo Yancey

Bo Yancey is Director of Professional Services for Redwood Analytics/Lexis Nexis.