Make More Rain : pricing, technology

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)

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]

Billing Rates for Midsized Law Firms

Admin — Thu, 22 Feb 2007 20:28:16 GMT

The March 2007 issue of the Law Office Management & Administration Report from IOMA, included a few highlights from the organization’s 2006-2007 Law Firm Management Survey.

The survey indicated that midsized firms increased billing rates an average 7.2 percent. In morepartnerincome’s view, the increase is continuing evidence of midsized firm pricing power. Midsized firms have a significant pricing advantage over big law. And there continues be a wide variance between billing rates by size.

Geography also has a lot to do with law firm billing rates. The highest rates are enjoyed by firms in the Mid-Atlantic, the region stretching from Virginia to New York. Using that region as 100 percent, the table below illustrates the variance reported by IOMA.

Depending on where you are located, apply the appropriate percentages above to the table by size to get an idea about prices in your area.

The wide variation in billable rates illustrates the fallacy of an annual price increase strategy. Law firms with unnecessarily low rates remain low as annual increases raise the tide for all. The majority of midsized firms can significantly increase rates and still have a pricing advantage over big law. For a way out of the low rate box, read the prior post Partner Income Related to Law Firms Fees.

For additional information or to purchase the complete results from IOMA’s 2006—2007 Law Firm Management Survey, contact IOMA subscriber services at 212/244-0360 or email subserve@ioma.com.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Law Firm Rate or Fee Increase Letter

Admin — Wed, 07 Feb 2007 19:47:00 GMT

It is that time of the year—law firms are sending out rate increase letters. How do I know? Morepartnerincome.com is getting 20-30 search engine hits each day from law firms searching for examples of letters announcing fee increases for legal services. In light of this activity, it seems appropriate to update and republish my earlier post on the subject.

A simple and straightforward letter like that below is usually best. If the increase is reasonable and the firm’s fees are competitive, increase events will usually be accepted by your clients without objection. However, your most significant clients deserve a phone call or visit, which you can then follow up by letter.

Sample Letter Body

Thank you for the opportunity to provide your legal services. I trust that you have found our entire organization responsive to your needs. Please know that I always welcome suggestions for improving our services and your satisfaction with our processes and procedures.

Periodically, it becomes necessary to change our prices to remain competitive and maintain the level of service that our clients expect. [(or alternatively) As we discussed earlier, it has become necessary to change our fees in order to remain competitive and maintain the level of service that our clients expect.]

I have enclosed a schedule of the fees and hourly rates that will apply to services provided to you beginning __________________.

I would also like to take this opportunity to point out that while the firm’s services are usually provided on an hourly basis consistent with customary law firm practices, there are alternatives in special situations. Should matters arise where you prefer a fixed fee arrangement, for example, we will be happy to work toward such an agreement based on the defined scope of work to be performed.

If you have any questions or suggestions concerning our relationship, please call.

Sincerely

For most midsized law firms, the increase letter is a minor concern compared to the difficulty of actually implementing a price increase. It is far easier for the firm to decide on an increase than it is to actually implement the decision. Law firm pricing is far more complicated than a simple schedule of standard rates. Client agreements include:

Fixed fee engagements
Retainer arrangements
Negotiated exceptions to the firm’s standard rate schedule
Client-mandated rates accepted by the law firm
Long-standing clients still being billed using rates in effect at the time of origination
Etc.

Even disregarding the above complexity, what about the clients you added the week or month prior to increasing the firm’s fee structure? You are probably not going to immediately increase prices for your newest clients. Given the complexities of a firm’s current pricing, getting the benefit of a rate increase often requires analysis of each client situation and dealing with each client individually or, at a minimum, in groups.

One approach is for the firm to review its standard hourly fee schedule annually and apply those new rates as the baseline for setting or negotiating the fee for new clients and matters coming into the firm. With respect to the firm’s existing clients or matters, however, the approach would provide for review and re-pricing on their anniversary date. Such a plan provides an orderly and manageable process for renegotiating fees. Your accounting system should provide you with the ability to code client/matters by an anniversary month.

Absent an orderly and manageable process like that described above, some clients simply fall through the cracks. They continue to enjoy unadjusted rates for years and become out of synch with firm price movements.

Firms taking the annual review approach for new matters coupled with anniversary date re-pricing for existing clients need not send a general rate increase letter. Letters would be warranted on a client-by-client basis as appropriate.

It is also important to understand that if your firm is underpriced, annual increases alone will not solve the problem. Those firms need a deliberate approach to restructuring their fees based on market information. How do you know how your prices compare? Traditional surveys provide some insight, but they are often 18 to 24 months behind the curve, and matching an individual firm to a meaningful peer group is an imperfect task. Better information is now available through new benchmarking services and, for Juris law firms, through the new Juris Insight service.

Partner Income Related to Law Firms Fees

Admin — Thu, 02 Nov 2006 18:26:28 GMT

The recent Law Firm Economic Survey conducted by Juris, Inc. illustrated the relationship between the fees charged by midsized law firms and their per-partner income. While that relationship might seem unsurprising, it should be thought provoking.

The above chart divides surveyed firms into quartiles according to per-partner income and then shows the comparison between their average fees. The actual realized blended rates, as well as reported standard rates, were lower for each subsequent quartile. Partners of law firms in the first quartile earned twice the per-partner income of the second quartile and seven times the earnings of partners in the fourth quartile. Is this a blinding glimpse of the obvious—law firms that charge more make more?

Here are the important questions: Are the lawyers in the top 25 percent of surveyed firms better lawyers? Are they smarter? Did those firms pick more profitable practice areas? Have they done a better job at branding?

Let me suggest a simpler answer. Midsized law firms with higher rates simply set them higher to start with! If we take a look at individual firms, we can find clear reasons why one firm can charge higher rates than others. But when I review the 2005 survey results, these reasons don’t appear to explain the aggregated results in the survey. The composition of each quartile appears to be similar mixes of practice classes and size.

Law firms regularly increase rates from year to year to cover increased operating expenses, including associate salaries. In most cases, such increases do not contribute to higher margins. They simply recover higher expenses. If a firm starts with lower fee rates, they tend to stay lower in spite of annual or periodic increases.

Midsized law firms need better information about competitive prices in the marketplace. Rather than think in terms of annual increases to the existing fee structure, they need to reset those fees based on market information. They need competitive and peer group intelligence. Traditional surveys provide some insight, but they are often 18 to 24 months behind the curve, and matching your individual firm to a meaningful peer group is an imperfect task. Better information is on the way through new benchmarking services such as those from Redwood Analytics, Peer Monitor and Juris Insight.

Even with better information, individual law firms can have a difficult time restructuring rates. Compensation plans often lead to partner resistance toward anything other than moderate increases. Partners dependent on origination credit for a significant portion of their income can feel threatened by possible client defections. The best approach may be an incremental one. Reset fee structures for new business and develop an incremental plan to rework existing relationships over time. A helpful guide to price increase implementation was suggested in the prior post Law Firm Rate or Fee Increase Letter.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Leaving BigLaw -Times Are Favorable for Starting Your Own Firm

Admin — Wed, 01 Nov 2006 18:29:19 GMT

Some of the transformations in the operating environment that give rise to the Long Tail economic theory have already begun to change the prospects of small and midsized firms.

Law departments know the economic and service quality benefits of using midsized law firms versus the usual mega firm suspects.
The traditional barrier to using midsized firms has to do with demographics. There are only 250 BigLaw firms, but how can a law department know anything about the next 10,000 or 30,000 law firms, let alone the 300,000 below that?
While midsized and small firms have traditionally been thought to represent individuals and small to midsized businesses, the Corporate Counsel® publication reports that 25 percent of surveyed Fortune 250 corporations had law firms of 40 or less attorneys on their “go to” law firms list.
Make the right moves and prospective clients worldwide can now find you easily; even large corporations are starting to shop the Internet for niche players in legal specialties. A survey by Alyn-Weiss & Associates, Inc. disclosed that law firm web sites are now the single most effective marketing tool employed by law firms engaged in corporate, transactional, and defense work. The Alyn-Weiss report surmised “that purchase patterns for legal services are clearly shifting, [and] Internet inquiry and research, whether a personal referral occurred or not, is increasingly commonplace for counsel and executives.” The survey found that 82 percent of surveyed law firms now get business over the Web. In the June 2006 issue of Law Office Management & Administration Report, IOMA noted that the data suggests the shift toward the growing importance of the Internet, and the firm’s visibility on it will only continue.

The times favor new law firm start-ups. But make no mistake; leaving a large firm environment to do so is a risky business. Don’t expect all your clients to follow you. They never do. You have to transition from a lawyer to a business person or, as some put it, from being a grinder to being a finder and minder. Succeeding takes time and you need the financial reserves to stay the course. If you or your “to be” partners don’t have the interest or disposition to be a business manager, you best stay put where you are. Second, if you can’t bring in new business, you will be spiraling down rather than up.

If you do start your own law firm, look for vendors like Juris who offer start-up packages to work with young and growing firms.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.