Make More Rain : pricing, blog

RFPs: A Necessary Evil

Admin — Mon, 09 Mar 2009 21:58:00 GMT

As we’re all aware, in today’s economic climate there is a big focus on cost reduction. It’s no surprise, then, that RFP’s are being used with even greater frequency by purchasers of legal services. The concept is not new, but the extreme focus on price across a large percentage of those companies probably is. For law firms, this is not a happy consequence. Law firms incur significant expense by simply responding to RFP’s, with no guarantee of work at the end of the process. Of course, a primary reason for companies using RFP’s to begin with is to get the lowest price across all parties—which means that the “winner” of the RFP may not be getting profitable work. In an RFP process, it’s not a guarantee that the lowest price will get the business, but it’s nearly certain that “bidders” with pricing substantially above the lowest prices will be eliminated quickly from consideration.

...(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.

Client Stages - A new way of looking at a client's life cycle

Admin — Tue, 11 Nov 2008 23:59:00 GMT

Inventory aging buckets are boring. Useful, yes, but still boring. Looking at how unbilled or uncollected hours have been spread over 30 day increments reminds me of learning to count by 2’s. There IS a business need for dissecting Inventory into manageable buckets, but that is for another post. Even before hours start to age, it is important to understand if we are growing the number of hours being worked. It’s simple. Look at this year, look at last year, do the math – better/worse. Right?

At a basic level, yes. However, what if you take the concept of creating Inventory buckets and apply it to the growth in production over time? You would either create another collection of buckets (5%, 10%, etc.) OR you would have an entirely new perspective on the development of your client base.

At Redwood Analytics, we call this Client Stages. These Stages allow us to analyze the client base in ways beyond a simple ranking of hours or growth rates. The basis for the Stages is the growth of the hours worked over the last 12 months (Rolling 12) compared to the 12 months prior (Prior Rolling 12). By using the last 24 months, independent of calendar years, we capture the growth from 2 full business cycles rather than a partial perspective such as year-to –date. Once the growths rates are calculated, the clients are categorized into the following lifecycle stages:

ACTIVE	Work within the last 12 months
New & Renewed	Work within the last 12 months, no work in previous 12 months
Thriving	100% growth in work vs. prior rolling 12 months
Growing	Between 20% and 100% growth in work over prior 12 months
Stable	Between -20% and 20% growth in work from prior 12 months
Declining	Between -50% and -20% growth
At Risk	More than 50% decline

INACTIVE	No work in the last 12 months
Dormant	No work in the last 12 months, but work in previous 12
Lost	No work in last 24 months

Having the client population dissected into these stages allows for much broader analytic review. Now rather than looking at the clients as a total pool, we can analyze them based on their lifecycle stage. Identifying clients who are declining or at risk of going dormant becomes easier and provides you with meaningful, decision-making information very quickly. If you are trying to determine where to spend client development dollars, focusing on strategic clients in some of the underperforming stages is a good place to start.

The more that you can look at your client base from different angles, the more that opportunities will reveal themselves to you. Client stages are just the beginning of a forward looking view at your firm’s health—which in large part is based on its clients. Take some time and consider the value that could be gained from examining clients based on how long they’ve been with the firm; their ranking based on the revenue potential they bring to the table; or perhaps a rating system based on key metrics like realization, production, and cash cycle. Inventory aging buckets are useful from a billing & collections standpoint, but don’t limit yourself to one perspective of your firm’s lifeblood.

--Jonathan Huyard

Jonathan Huyard is a senior consultant with Business of Law Services team for Redwood Analytics/LexisNexis.

RainToday Report: 76% of Law Firms Discount Fees

Admin — Fri, 06 Jun 2008 07:00:32 GMT

Pricing has been a frequent topic at More Partner Income. Some past topics include the science behind pricing, the ill effects of inflation on pricing, pricing management, and discounting.

RainToday has recently released the Fees & Pricing Benchmark Report: Law Firm & Legal Services Industry 2008. David Maister wrote a blog post on a similar report released by RainToday focused on the consulting industry on April 28th. There were some striking similarities between the two reports:

65% of consulting firms reported they discounted fees. 76% of law firms reported discounting fees;
Average discount of responding consulting firms was 11.7%. Average discount of responding law firms was 9.9%.

Of the two pre-bill adjustments (mark downs and discounts), discounting is the most difficult to change. Both show weakness in the firm, but discounting creates a feeling of entitlement from clients. How?

Marking down time tells your client one of several things (the below is not exhaustive):

I spent more time than I can reasonably charge you for the service provided: ie, I am not efficiently working the matter;
My associates spent more time that I can reasonably charge you for the service provided: ie, my firm has less competent attorneys working on your case or I have inefficient staff working on your case;
Even though I spent an adequate amount of time on this, it "seems" too high to me: ie, I am unclear on the value of my service.

All of the above are correctable. They are entry-specific adjustments that can be seen as temporary.

On the other hand, discounts are typically applied to the entire bill. This gives rise to expectations of entitilement. They can tell your clients one very negative thing: I am overcharging you up front and adjusting it on the back-end.

Just as discussed on this site in the post Discounting At Law Firms, the RainToday report suggests that there may be valid reasons to discount, but only when the discount is intentional, strategic, and, ultimately, mutually beneficial to you and your client.

Some reasons to discount given in the report include well-funded start-up clients (in expectation of long-term payoffs) and absorbing the cost of training new associates. It is also something to consider when trying to win RFPs, in exchange for quick payment of invoices or in return for a threshold amount of work that the client will provide to the firm.

The important part of discounting is that it is mutually beneficial to you and your client - there needs to be consideration for the discount. It needs to be binding so that if the client does not perform on their end, the discount doesn't get applied. If there isn't quid pro quo, you are giving a clear message to your client that you overcharge up front - and that your rates are open to negotiation.

Tax Reform Up For Grabs

Admin — Thu, 29 May 2008 07:00:45 GMT

With the tax cuts enabled during the Bush administration coming to an end soon, lobbyists and tax attorneys are lining up to offer their opinions on how the tax code should be reformed.

According to an article in the National Law Journal (Firms Gear Up For Critical Tax Polcy Changes), "[a]bout $4 trillion worth of tax revenue provisions are expiring, the most in the history of the U.S. tax system":

"The next president has some ticking time bombs to address," said Jim Miller, a tax attorney who last month moved to Winston & Strawn's Washington office from Hunton & Williams. "There's now the greatest potential for tax reform certainly since 1986".

How is this important to you? Consider this:

"Tax issues will be the key driver for political and economic activity for the next half-dozen years," Mike T. McNamara (a Sonnenschein Nath & Rosenthal partner) said. "All of our clients are trying to look at how tax policy will drive or hinder their business plans."

It isn't just your clients who need to watch the tax policy. Your firm needs to pay close attention to how tax policy is addressed so that you may draft your own business plan that take the new policies into consideration.

Alan J. Auerbach, Jason Furman, and William G. Gale wrote an essay on possible approaches to tax policy titled Facing the Music: The Fiscal Outlook at the End of the Bush Administration.

The tax foundation has a summary of each of the Presidential Candidates' tax plans that can be accessed by clicking here.

If you want to talk about "perfect storms", consider the effects on your business of expiring tax cuts and a struggling economy. How tax policy is approached in the coming year(s) will be telling on how well our economy rebounds from this (at least so far) minor contraction.

The Science Behind Pricing

Admin — Tue, 22 Apr 2008 07:00:25 GMT

The April 2008 Scientific American contains an article titled Why Things Cost $19.95: What Are The Psychological "Rules" Of Bartering? (hat tip: Matthew Homann, in his blog the [non]billable hour). The article explains the effects that initial pricing has on a potential buyer based on a series of tests. The results found:

people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.

The authors of the tests then looked at five years of real estate sales in Florida to see the difference between the list price of real estate and the actual sales price.

They found that sellers who listed their homes more precisely—say $494,500 as opposed to $500,000—consistently got closer to their asking price. Put another way, buyers were less likely to negotiate the price down as far when they encountered a precise asking price. Furthermore, houses listed in round numbers lost more value if they sat on the market for a couple of months. So, bottom line: one way to deal with a buyer’s market may be to pick an exact list price to begin with.

Homann, in his post on the subject, took it a step further: Why not charge $297 per hour rather than $300 per hour? Then if a client wanted to negotiate, ostensibly the negotiations would be in single dollars rather than tens of dollars.

In the case of firms who are competing with other firms for business, this tactic may work well to secure a deal.

It may not work as well when clients are asking for a discount. Many times when it comes to discounting rates, clients look at percentage discounts of the whole bill rather than dollar discounts. Therefore taking a few dollars off the charge per hour may end up costing you a lot more than anticipated. Where it may work better is in flat fee or value-bill situations, where you are adjusting only the final price of the service.

So, if you have priced a certain task at $1,500, try advertising a price of $1,497.96. On top of making the client look at penny increments, it also makes it look like you have calculated the exact value of the service. Before making wholesale changes to your pricing, try on a specific area that may have a higher average of discounts (or lost potential clients due to pricing) than other areas. Track whether the change in pricing has an effect. If so, please feel free to post your results here.

Discounting At Law Firms

Admin — Wed, 09 Apr 2008 07:00:27 GMT

I received an email from Brendon Carr, foreign legal consultant and host of the Korea Law Blog, regarding a recent post of his, “I Don’t Care What You Charge; Whatever It Is, It’s 15% Too Much”. The post discusses a request from a new client for an across-the-board 15% discount for his services.

In my experience working with law firms, discounting is the most difficult thing to change. Where mark-downs to work performed can be addressed internally, discounting becomes an entitlement to a client. The only ways to recoup the loss in value is to increase rates at a higher percentage than other clients, pad your hours by billing for things you may otherwise not charge to a client, tie the discount to high volume, or tie the discount to fast payment of invoices The first two are not conducive to a positive trust relationship with the client.

In my opinion, discounting should be avoided at almost all costs - the exceptions being:

In return for high volume of business that compensates for the reduced value of your time. There is nothing shameful in requesting from a client who asks for a discount to provide estimates of business it will provide and tying the discount to their ability to provide that level of business. Then you can agree to the discount, but will provide it once the threshold business the client sends you is met.
In return for fast payment of invoices. This encourages fast payment and thus a positive effect on cash flow.

When in a situation such as that of Mr. Carr, several questions come to mind:

Is asking for a discount up front damaging to the relationship between attorney and client?
Does mandatory discounting encourage mark-up of hours?
If it becomes known that your firm discounts, does it create a perception by clients that your firm expects rate negotiation and thus overcharges for its services?

What do you think? Add a comment below to share your thoughts.

We have begun taking submissions for the 2008 Law Firm Economic Survey. If your firm is interested in participating, please contact Brian by clicking here.

How Inflation Deflates A Law Firm's Bottom Line

Admin — Wed, 12 Mar 2008 07:00:13 GMT

I received an email earlier this week from a reader who corrected an error I made when discussing the effects of inflation within the post How Law Firms Can Increase Income By $100k Per Partner In 1 Year. Rather than re-working the example in the original post(where few would notice it), I decided to dedicate a post to the effects of inflation on your bottom line and clarify the point, which was not in error. Considering the overwhelming negativity flowing through the minds of many regarding our current economy, a discussion on inflation's affect on profitability appears ripe anyway.

During the 1990's inflation increased an average of 3% per year. In fact, many of us have become accustomed to using the standard of 3% when adjusting any cost by the rate of inflation. From 2000-2006, inflation was even a little better, increasing on average of only 2.85% per year.

Source: www.inflationdata.com

In 2007, the average rate of inflation was still only 2.85%. However, in the last 2 months of 2007, a trend began that is continuing this year. From November, 2007 until January, 2008, inflation has exceeded 4%. On March 14, the February inflation percentage will be released. It will be interesting to see if this trend continues [MARCH 14 UPDATE: Core inflation was unchanged in February - news that, while perhaps temporary, opens the door to another interest rate cut by the Federal Reserve.]. Regardless, January's inflation was highest in the month of January since 1991.

Source: www.inflationdata.com

Inflation has actually has been moving up since 2000, except for an interruption after the impact of Hurricane Katrina caused inflation to first spike just after the storm, then drop to under 2% in late 2006. It wasn't until late 2007 that rates returned to the 6 year trend, according to the below chart.

Source: www.inflationdata.com

Whether inflation is going to stay at plus 4% in 2008 remains to be seen, but let's just consider the effect of inflation based on the average from 2000-2007 (2.85%). In the following example, annual revenues are $1 million (for simplicity). To determine the effect of inflation on your bottom line, the scenario I am using utilizes fixed margin percentages of 10%, 11%, 15%, 20%, 30%, 40% and 50%. (Using these percentages alone make business owners of other industries indignant, as many can't imagine pulling margins of 50% - though the best performing law firms in the 2007 Law Firm Economic Survey were doing just that) As well as factoring inflation, I also factor in a 6.5% increase in revenue (based on predicted rate increases from firms in the 2007 Survey). Will this offset inflation?

Not hardly. In fact, at low margins, inflation is deadly. If margin is 10%, even with a rate increase of 6.5%, income purchase power is reduced by 22%. Even at 15% margin, your purchase power is reduced 13%. It is not hard to see how small businesses with low margins struggle to survive even moderate inflation.

With margins up to 40%, you are still losing money when revenue increases 6.5% and inflation is as low as 2.85%. However, at least when margins are 40% you are close to offsetting inflation - so long as revenue increases more than double the rate of inflation.

The above model takes into consideration a rise of expenses that includes both inflation and the revenue increase. The assumption is, as Parkinson's Second Law states, that "expenses rise to meet income". When you increase revenue, it is likely due to an investment, whether that investment is additional staff, timekeepers, technology, pay increases, etc. The numbers above change if you only apply inflation to expenses, but that would assume that you are not investing in the above to increase revenue. One way to accomplish increased revenue without additional cost is through increasing productivity, at least in the short term (for those who increase productivity will soon seek financial reward).

In the above, you can see the drastic difference taking "revenue cost" out of the equation. If you can increase revenue without adding cost, inflation is suddenly no longer a threat - all you must do is keep up with the rate of inflation and inflation is abated. In the above, you actually see a higher percentage increase with lower margin. In any event, income across the board goes up. The above, however, is accurate only in the short-term, as costs inevitably increase with revenue.

What can be concluded from this?

Rate increases must be much higher than the rate of inflation to offset its effects (ie, rate alone isn't a path to increasing income);
The higher your margin, the less inflation affects income;
Higher productivity with higher rates can substantially increase income in the short term and minimize its effects in the long run.

For subscribers of the blog, I have attached a spreadsheet with both formulas for you to use to plug in your own numbers and forecast how inflation will affect your profits in both the short run (if you budget for higher revenue without additional cost - such as increasing productivity) and the long run. To download, click here. If you haven't already subscribed, registration is free. Thanks to Joe Dwyer for his time and thoughts.

Law Firm Pricing Management

Admin — Thu, 21 Feb 2008 08:00:46 GMT

One of the more common questions I hear asked by attorneys is how to set their rates. Many attorneys raise their rates periodically but not as part of a strategy to maintain or increase margin. Pricing management is addressed in detail in an article in Managing Partner Magazine titled Pricing Management. Noting that most firms still use a "reactive" approach to pricing, the article suggests instituting a pricing management function within the firm closely tied to the finance and marketing functions. A systematic approach is recommended that positions pricing with your strategic goals.

According to the article, firms should prioritize consideration of the price it will charge for its services and to ensure that the firm’s value and pricing propositions are constantly reviewed and improved upon, and communicated to clients at all levels of the firm. Firms should manage the pricing function around three levels: industry, practice and engagement level.

Industry Level: invest in understanding how variables drive supply and demand for legal services in your particular industry of practice.
- Systemic drivers: focus on short and long term considerations in the industry affecting client demand.
- Service delivery: leverage your firm's technology and skills as value that sets your firm apart
- Client patterns: how often they are a source of new business, how well they pay, etc.
- Talent supply: look into alternatives in how services can be delivered to be more cost effective.
- Pricing Czar: A finance director or equity partner should be dedicated to reviewing these drivers and organizing a pricing strategy and structure that meets the financial needs of the firm.
Practice Level: understand the markets that your firm and its practices operate.
- Testing client perceptions: client interviews, surveys, etc to better understand client need and provide better value.
- Discriminating among clients: develop rates that fit the client and practice area, not one-size-fits-all.
- Objectively reviewing fee schedule: periodically check market position as well as reputation of key partners by conducting blind study of key clients.
- Central pricing function supporting practice-group leaders: remove discretion in pricing except at practice group level - discounting should be first approved by pricing czar.
Engagement Level: getting the best price for each matter
- Training: partners need to understand the effect even minor discounts have on the bottom line; develop skill in communicating value.
- Tools: having proper tools to measure performance so as to maximize profitability based on comparison of historically similar matters.
- Systems: develop processes to review efficiency and improve on it to better price similar matters in the future.

Though some feel trapped in their pricing scheme, firms can and should plan how they price their services. With a well-conceived and implemented pricing plan, firms can be proactive and systematic in developing a pricing structure aligned with their strategic plan.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

A Warning For Law Firms (And Business Clients) Using Facebook

Admin — Wed, 20 Feb 2008 08:00:41 GMT

There has been some discussion in legal blogs regarding the use of social networking tools such as Facebook as a marketing tool. Kevin O'Keefe notes the potential of Facebook as a growing force for lawyers and businesspeople. Larry Bodine writes [w]hy lawyers can't ignore Facebook for networking.

The Birmingham Post (UK) writes of a reason why there should be caution in using Facebook. In an article titled Facebook May Blow Up In Your Face, several potential "minefields" are noted:

Facebook is for personal use only: In its terms and conditions, it states in the first sentence under User Conduct:

"You understand that except for advertising programs offered by us on the Site (e.g., Facebook Flyers, Facebook Marketplace), the Service and the Site are available for your personal, non-commercial use only."

In the terms and conditions, every user agrees not to register for more than one user account, not to register a user account on behalf of another, or register a user account on behalf of any group or entity.
You can be banned from Facebook for a violation of terms, subject to "final and binding arbitration" under Delaware law, likely in California.
Facebook has a license to do whatever it wants with content you provide. In theory, you could upload a photograph and Facebook could sell it without you receiving a penny. If you write lengthy notes about business related issues, these could be turned into a book by Facebook for its gain, not yours. Relevant wording from terms and conditions:

"By posting User Content to any part of the Site, you automatically grant, and you represent and warrant that you have the right to grant, to the Company an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to use, copy, publicly perform, publicly display, reformat, translate, excerpt (in whole or in part) and distribute such User Content for any purpose, commercial, advertising, or otherwise, on or in connection with the Site or the promotion thereof, to prepare derivative works of, or incorporate into other works, such User Content, and to grant and authorize sublicenses of the foregoing."

Bodine cites Joshua Fruchter, in a more recent post, citing methods of using Facebook as a marketing tool. Particularly in regard to posting copyrighted content, this should be re-assessed.

Bodine and O'Keefe promote Facebook as a networking tool. Facebook does have a section for businesses called Facebook Pages that serves this purpose. However, there is no pre-screening process to ensure that the entity is in fact who it states it is (read: Wikipedia-ish). There is an additional terms and conditions (which incorporates the original terms) that doesn't negate any of the above concerns (apart from allowing commercial use). If you plan to utilize this tool, make sure you follow the guidelines of Facebook's terms and conditions. [poll=7]

Lawyer Professionalism Tied To Value Billing?

Admin — Tue, 19 Feb 2008 08:00:01 GMT

It's not that I am against value billing. I am just against the proposition that the hourly billing model is an inherent source of evil. When reading Ed Poll's post on Professionalism versus Competence, a sentence caught my eye that appears to be another slam against the billable hour.

The post is about a recent USA Today poll asking whether co-worker's rude or unprofessional behavior should be tolerated if they otherwise do a good job. Thankfully the answer was overwhelmingly no. No one wants to work with rude people.

Poll notes the new firm Patrick Lamb co-founded this year that focuses on value billing. There is much positive press when law firms move to this model so the marketing upside is a good thing. But then came this:

As more lawyers succeed in this business model, perhaps others will follow. Then, perhaps, will civility in the profession be achieved.

Am I to conclude that without this business model (value billing), civility can't be achieved in the legal profession? First, I don't want to mistake Poll's point: that providing value to clients and a team mentality within the firm adds civility to the profession. Agreed. However, how is this at odds with hourly billing? Is it because some (and unfortunately many) are sloppy in their billing process? Or worse, unfairly padding their hours?

Assuming this is a widespread problem, does value billing fix it? Maybe, but not by its presence alone. If you sell services at a fixed fee, you had better know the price of your services or you won't be in business long. Tom Kane explains in a recent post the importance of tracking time even if you bill at a fixed fee.

Understanding that in all but a few routine transactions there are variations in the time it takes to provide a service depending on the variables surrounding the case, you will need to account for differences in the price of particular tasks. So while on the surface everyone may be paying the same for a service, some will be paying more for a task while others pay less. It depends on how difficult the task is and how efficient the attorney.

In fact, if anything, value billing helps budgeting for lawyers since you can set goals on how many tasks you sell clients. Crafty firms can then weed out the difficult cases through case assessment to maximize profit. Finally, marketing efforts can sway those who would buy into the "value" concept unaware of the higher price they are paying for a simple legal task.

Am I saying this is how firms who "value bill" operate? No. Can they operate this way? Yes. Is that a better value to clients? No. And to answer the presumptive rebuttal, "with value-billing, if the client doesn't like the fee, we will adjust it for them" I would answer, "and how is this different from hourly billing?" I've yet to meet a lawyer that is unfamiliar with post-bill adjustments. Some attorneys have a chronic habit of reducing their fees prior to billing as well. The biggest attraction to the value billing model isn't the savings to clients (marketing notwithstanding), it's the potential for higher revenues for well-managed law firms who price margin into the fee. The value of value billing to the client is nothing more than trading actual cost for pre-performance cost certainty - that apparently can still be negotiated after the service is provided (at least when firms open the door for negotiating fees after performance).

Once again, it comes down to trust. If there is a trusted relationship between attorney and client, then attorneys shouldn't overbill their clients and clients shouldn't question attorneys' fees (after-the-fact) - regardless of the method. As Poll states in an earlier post, "there is a very small percentage of 'bad apples' in the legal profession." The devil isn't in the billable hour. It's in those bad apples.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Business-Continuity Planning for Law Firms

Admin — Mon, 18 Feb 2008 08:00:12 GMT

Planning is an oft-referenced theme on this blog. Plan for increasing wealth, plan for economic down cycles, plan for disasters. What about during interruptions such as the recent blackberry outage?

There are many things that can cause business interruptions. Planning for them will mitigate the consequences those interruptions have on your firm's operations. Not planning for them will cost you money.

What are some things you can do to prepare? There are companies that make a living selling plans to businesses, but basic guidelines include:

Business Impact Analysis: Determine the effect an outage would have on the firm's most crucial systems and processes. More or less identifying the important processes subject to interruption and how that interruption will affect business. In a law firm, this includes (but is not limited to) telephone systems, computers, staff, software systems.
Plan what you will do if business interruption takes place: This, of course, is the hard part. Planning means taking the time to think of ways around the interruption - and gain approval for the procedure. For example, if your office is unavailable, where are critical staff? They need to have a place to meet to put in effect the plan. Remote communication is easier now than it's ever been. Cell phones help but what about email? If your email servers go down, you will need a backup plan to send and receive communications. There are services such as Mimecast Unified Email Messaging that can provide a seamless transition that clients won't notice - making it appear as if there were no interruption at all - so long as you have access to high speed internet or have a data-enabled mobile device. In the case of an interruption of internet access, there needs to be a secondary plan to know where your people are.
Always have good, redundant, and off-site backups available: All the benefits of technology are in vain in a disaster situation if you have no backups. It has been reported that 25% to 30% of backups don't save properly. When was the last time your office checked to make sure the backups were working? Services such as LexisNexis Data Backup and Protection Services provide continuous automatic off-site storage of your data.
Run a drill or two to test the processes: It is paradoxical to interrupt the business day to test processes geared to mitigate interruptions in the business day. But it has to be done. Otherwise you may not find the flaws in the plan until you put the plan in action - not the time you want to find out that you left out an important facet.
Review the plan annually: Don't just dust off the Y2K disaster readiness plan and change the cover page. Times change, technologies change, and needs change. Make sure you are up to date on all your systems and their effect on your business.

A sample business continuity and disaster preparedness plan, courtesy of ready.gov, can be downloaded by clicking here.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Regular Client Communication Pays In Many Ways for Attorneys

Admin — Wed, 02 Jan 2008 14:00:00 GMT

According to the new Managing Outside Counsel Survey by ACC/Serengeti, inhouse corporate counsel are projecting a rate increase of 5.3% in 2008. That's the good news. The better news is that last year, they projected an increase of 4.8% but rates were actually increased 6.0%! This is in line with most firms who plan to increase rates (between 5 and 7%).

The reports were posted in a recent article in The Law Marketing Portal.

Other findings:

• Predominance of hourly rates – alternative billing fee arrangements (surprise!) aren’t taking hold with in-house counsel.
• Little client oversight – 75% of in-house counsel aren’t managing outside counsel.
• “Convergence” is going away – 75% of in house counsel aren’t consolidating the work to a few firms.
• Cutting fees is not the top client priority – No need to devalue work performed with mark-downs; Corporate clients are more concerned with Sarbanes/Oxley and high profile trials of corporate executives.
• Few corporate RFPs – 76% of in house counsel didn’t issue a Request for Proposal last year. A reason given was the poor rate of firms responding – there’s a lesson to be learned here . . .
• Spending on firms is up – this year on average, companies devoted 38% of their revenues on outside legal spending. Can we thank Sarbanes/ Oxley for that too??

The news isn't all good. Nearly half of in house counsel reported that they terminated relationships with outside counsel last year. Why?

• Failing to perform to client expectations.
• High costs (likely related to perceived value rather than rates considering what in house counsel expect).
• Poor work product or results.
• Poor Communication and personality issues.

What can you gain from this survey? There is nothing here you shouldn't already know and the complaints can apply equally with any client, not just inhouse counsel. There is likely a correlation with poor communications to the other complaints from a client. A client is more likely to complain about expectations, results, and costs if they aren't receiving adequate communications. To the extent you don't regularly update your clients, this survey is a reminder that clients place a premium (literally and figuratively) on communications. Make sure all the attorneys at your firm regularly update their clients on the status of their matters.

For more information on this survey, visit the Serengeti web site here.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

2008 Predictions

Admin — Mon, 31 Dec 2007 14:00:00 GMT

Some have New Years' resolutions. Others predict what may come in the new year. Though both are likely doomed to fail, I'd rather go with the one with a better chance of success: predictions. Here are mine for 2008:

1. The effects of the credit market "correction" will lead to a sharp rise in bankruptcies and foreclosures, giving work opportunities to attorneys who are looking for a new direction after the crash of the mortgage industry (though not everyone agrees). On the creditor side at least you may be working with some of the same clients.

2. Is it a merger or is it hiring a bunch of laterals? Whatever you want to call it, I predict an increase in these transactions in 2008, particularly from big law firm defections and small law firm attempts to expand practice areas. The shifting market will favor those firms who have a diverse practice - boutiques that specialize in the wrong practice areas will wish they had held more retained earnings.

3. Business Intelligence tools, sprouting at shows in 2007, will be a central feature showcased around trade shows. To the vendors who can make it the most relevant for firms who don't currently see the value will come the spoils.

4. 2008 is an election year and it appears that the nation's polling infrastructure still has some work to do. That opens an opportunity for enterprising attorneys well placed when voters balk at the results.

5. The billable hour finally dies. Just kidding. My prediction (going out on a limb) is for the traditional fee arrangement to be the primary method of billing clients for another year, though the cries for its demise will still be heard. Though there are more opportunities for change (ie, client demands for more cost certainty), movement towards alternative arrangements will likely show up more with new firms who use their unique fee arrangement as a way to differentiate themselves from the marketplace.

6. In spite of an economy that will slow, lawyers will still be busier than in 2007 (and most should be more profitable, even those accidentally successful) - can't help it, the practice of law is "recession-proof" (just make sure you diversify - see prediction #2).

Happy New Year!

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

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Exceptionally Good Article on Law Firm Pricing

Admin — Mon, 26 Nov 2007 19:40:10 GMT

I stumbled across an excellent article by Ward Bower of Altman Weil, Inc. The article, “Pricing Legal Services”, appeared in the January 2006 issue of Law Practice Today, but you can also find the original 2004 version on Altman Weil’s web site under the same title, Pricing Legal Services.

Bower provides an analytical approach for evaluating your current pricing in light of your income objectives. Bower even quantifies some of the influences on a firm’s ability to set price relative to other law firms. For example, to illustrate the relative power of various attributes on a firm’s pricing ability, Altman Weil computed the percent of spread between median rates of the highest and lowest group for each of the categories below.

The spread is almost 100 percent for Specialty. All other things being equal, the rate for a specialist can still be twice as much or more than that of an attorney without a specialty. Here are the spreads as reported by Bower:

Specialty 96%

Experience 76%

Firm Size 58%

Position (partner, associate 47%

Community Population 40%

Geographic Region 40%

While Bower’s article includes a formula approach for calculating the minimum rate necessary for the firm to achieve it objectives, Bower points out that this is only the start of the evaluation process. The remaining step is a big one. “The remaining step is to position lawyer hourly rates in the external marketplace.”

The formula gives you an economic test of your prices, but the final price must be determined in light of the firm's position in its market, the strategic aims of the firm, client price sensitivity, and the competitive strategy for the firm.

Most midrange firms are underpriced, especially compared to Big Law and large regional firms. They are underpriced simply because they initially set prices too low and have never caught up. There is ample room to achieve higher effective rates without loss of the competitive price advantage enjoyed by midrange law firms.

For more on price management, see the prior posts Pricing's Role in the Law Practice Business Model and Price Management for the Law Firm

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.