Make More Rain : productivity, pricing

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:

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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:

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

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.

Surveys Show Most Law Firms Are Underpriced

Admin — Thu, 18 Oct 2007 16:45:11 GMT

Altman Weil’s Survey of Law Firm Economics, 2007 Edition is available for purchase on the consulting firm’s web site. Their survey along with others such as the Juris Law Firm Economic Survey is an important source of information and benchmarks for law firm leaders.

Surveys continue to disclose that there is a wide gap between the top performing firms and the rest of the pack. Consistently those in the top performing category have higher effective prices.

Why are so many law firms underpriced?

While the press focuses on the $1000+ per hour billing rate and continues to hammer law firms for their excessive rates, high rates are not the norm. Many firms simply under price services relative to the market and relative to the value of the services they deliver. Billing attorney downward adjustments prior issuing client bills still represents a major revenue loss for law firms. Likewise, many firms provide “unrequested or non-negotiated” courtesy discounts. Most firms miss the opportunity to increase effective price through “alternative” fee arrangements. It is just easier to do work on an hourly basis. It takes effort to scope out a project and propose a fixed fee to the client.

Failure of billing (and originating) attorneys to fully implement price increases is another major contributor to under pricing. Yes law firms announce annual price increases, but those increases don’t always trickle down to long standing existing client relationships. As a result it is not unusual to find 50% or more of a law firm’s clients priced well below a firm’s target price levels.

On the whole “low prices” for the majority of law firms are more self-inflicted than due to pressure from clients.

How do you fix the problem?

It starts with measurement—measurement alone will improve performance. You need to measure comparative effective price not just at the firm level but also by office, department and practice area. The most important comparative measurements are by billing attorney, client and matter. Follow up measurement with planning, goals and steps to hold billing attorneys accountable. For more ideas that will increase the firm’s effective price, see the following prior post:

Pricing’s Role in the Law Practice Business Model

Price Management for the Law Firm

Law Firm Survival is Tied to Its Blended Rate

The Lever to Pull to Increase Existing Law Firm Profits

Getting a Handle on Billing Attorney Write Downs

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.

Raising Prices While Keeping Law Firm Clients

Admin — Tue, 09 Oct 2007 17:07:19 GMT

Midrange law firm leaders worry about client pressure on prices. In spite of the noise in the media, midsized law firms continue to be able to increase their prices and have considerable pricing room, as compared to the AmLaw 200 group. Matt Homann recently pointed out an article on CNNMoney.com that, as he says, is “worth a read”. Here is the heart of the quote from the article that Matt posted on his web site the [non] billable hour:

Many business owners assume that any price increase will drive customers away. But consultants who work with small companies say they often under-estimate their pricing power.” “….they don't appreciate the value of the added quality they offer, their fast and reliable delivery, or other superior services they provide - or could provide - to justify higher bills.”

Midsized firms not only have a pricing advantage in a world where legal consumers seem increasingly willing and able to take advantage of those lower prices, they also have plenty of room to increase prices and still maintain that advantage relative to larger competitors. Consider the table below taken from the IOMA 2006-2007 survey. The difference between the averages prices charged by the AmLaw 200 group of firms and smaller midrange law firms is material in anyone’s eyes. The key takeaway is that midsized firms, both inside and outside of major metropolitan areas, have qualified, competent lawyers and MUCH lower pricing. In the digital age, that is a strong competitive advantage and opportunity.

For midrange firms to take advantage of the pricing room they have, they need to be smarter about implementing price changes. The annual increase route has not paid off for law firms. It has covered increasing costs but has done little to improve earnings. Midrange firms need better price management, supported by a better business intelligence system. The objective has to be on the effective price the firm actually realizes and that is something entirely different from what the firm publically announces as its hourly rates.

The current pricing model for the majority of midrange firms is a complex maze of deviations and exceptions from the firm’s target price. Billing attorney discretion for adjusting and writing down hours and amounts adds to the price management challenge. Price management in such an environment requires a continuous process of price restructuring. It requires a continuing effort to simplify and eliminate exceptions. The payoff is big! For more on how to manage prices, read the post 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.

Long Time Law Firm Clients Are Priced Too Low

Admin — Thu, 27 Sep 2007 17:35:00 GMT

I was intrigued by an article on Customer Loyalty that appeared in a prior issue of the Harvard Business Review. I’m not sure of the publication date. I purchased and downloaded the article from www.hbrreprints.org.

In the article, authors Werner Reinartz and V. Kumar report that long-term customers paid lower prices than newer customers. As you might expect given the lower price, long-term customers tend not to be the highest profit producers. For law firms the question is why:

Do they enjoy a lower price as a reward for their loyalty?
Do they negotiate a discount as the price for their continued loyalty?
Are lower rates a reflection of the law firm’s sense of caution, i.e., let’s not rock the boat?
Is it just an accident—an unintended consequence for procedures and practices?

Based on my observations lower prices for long term clients tends to be a product of 2 and 3 above and there is usually more 4 than anything. Law firms consistently announce annual rate increases but they are not as consistent when it comes to implementing those new rates for existing relationships. Thus the longer one remains as a client of a given law firm, the more likely they are to be priced behind the curve.

There are better ways to reward loyal clients than providing them with a non-negotiated discount.

If you want to make a big difference in distributable partner income—examine the prices being charged to clients who have continued to do business with you for at least three years and bring their pricing up to date. Second, find out why those lower prices have continued below the radar screen—what practices or procedures result in accidental and non-negotiated discounts off the firm’s target price. Then change your procedures as warranted.

Another interesting finding reported in the article, The Mismanagement of Customer Loyalty, is that the highest profit producing clients are usually one-timers that spend a lot and never return. The message, as I read it, is charge a premium price and enjoy their business while you have it! Charging less is unlikely to contribute toward conversion of these one-times to long term clients. They may become one, but if so it will not be because of price.

PS: Fellow blogger Dan Hull of What About Clients advises that the article referenced above originally appeared in the July 2002 issue of the Harvard Business Review.

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.

Pricing's Role in the Law Practice Business Model

Admin — Thu, 23 Aug 2007 17:00:06 GMT

When Davis Maister published his Law Practice Business Model, shown below, he gave students and law firm leaders a unifying tool to understand and express the financial variables that determine per-partner income.

Maister’s contribution has proved to be an effective and valuable tool for understanding the key factors influencing law firm financial performance. As valuable as it is academically, however, some concessions to practicality are required for front line use in an actual law firm. Two modifications make the model's framework a more useful operational tool. Price, Blended Rate (BR) in Maister’s model, is expressed as the blended standard rate of a firm’s fee earners. That is difficult to determine and the method of calculation can bias the result. It is more practical to use a firm’s effective blended rate. Likewise, where Maister defines Realization as overall realization determined by dividing revenues by the standard value of time work, it is more practical to use collection realization determined by dividing collections by the amount billed.

That is the approach morepartnerincome.com will take in applying the Law Practice Business Model framework for the purpose of predicting future performance or testing the impact of changes in the formula’s variables. This post pulls together a number of prior posts to provide the reader with a single and more comprehensive review of the role that pricing plays in influencing per-partner income in the law firm.

Survey after survey comparing billing rates by firm size confirms the pricing advantage of midrange law firms. Midrange law firms across the board have upward pricing room. Many are significantly underpriced when you compare their standard (target rates) to peer level firms. And when you compare the rates actually billed by midrange firms, one frequently finds that their effective rates are materially below the firm’s reported standard rates.

Paul Calthrop, a partner in Bain & Company, makes the point that while lower pricing may be a viable strategy for entering a new market or launching something new, it otherwise inevitably undermines the firm’s prospects of achieving sustainable revenue and profit growth. For a law firm, Calthrop’s warning reinforces the importance of tracking the firm’s effective blended rate metrics. It also explains why it is so important for the firm to have strategies and tactics in place to continuously increase its effective blended rate.

Consider the following chart showing the correlation between price and per-partner income. The chart taken from Juris 2005 Law Firm Economic Survey disclosed that firms in the first quartile measured by per-partner income had the highest rate structure—both in terms of what they said were their prevailing standard prices and in terms of the “actual” blended rate being achieved. As you move across the quartiles in terms of partner income, prices declined. Partners in firms with the lowest price earned the lowest income. It is that clear.

You don’t achieve a continuing increase in the firm’s effective blended rate through periodic price increases alone. It requires sustained diligence directed at increasing the value of the services delivered by the firm and then making sure that the firm is being appropriately compensated for that value. For example, firms with a single standard rate schedule overlook the opportunity to price higher-value services at a higher rate. Likewise, constant review and reconsideration of pricing at the client level is needed since existing discounted rate deals are often the key to a low effective rate. It is also clear that some firms are underpriced and never catch up by relying on annual price increases. A deliberate approach is need to restructuring 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 including the new Juris Insight service.

Improved pricing deserves to be on the law firm leader's radar every single day given its important role in determining per partner income. All of the following should be considered in the firm’s ongoing efforts to move its blended rate higher:

Rather than rely on general price increases, restructure prices based on competitive benchmarks
Increase low negotiated rates extended to existing clients to their higher competitive level
Tighten control over billing attorney write downs and adjustments prior to billing
Introduce separate (higher) rate schedules for selected areas of specialization and expertise
Identify new specialty areas and train or acquire expertise, thereby increasing value and the potential for increased billing rates
Market for better clients—those willing and able to pay more
Add new value to established services—convenience, response times, certainty, etc.
Tighten and enforce case acceptance standards that emphasize the value of matters undertaken
Upgrade the quality of service, presentation of work product, technology, efficiency and responsiveness to create higher value
Increase unit value through improved efficiency
Increase value by improved predictability of cost to client—case and matter budgeting
Take advantage of opportunities for alternative billing (value based) pricing
Keep prices competitive with periodic or annual increases
Invest in a better business system for pricing flexibility, easier price changes, improved anniversary date tracking, etc.

Periodic price increases remain important, but few firms have systems and procedures in place to realize the benefits of an announced price increase. It is easy to announce an increase; it isn’t as easy to implement that increase across the board to existing clients. 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 simple example is the application of an increase to 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. Likewise, your originating attorneys and billing attorneys have agreed to deals that do not go away easily.

One approach is for the firm to reset standard hourly fee schedule annually, applying the 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, getting further and further out of synch with the firm’s target prices

You can’t successfully manage price without knowing what your price is and what is happening to it .That is not as easy as it sounds. Price, like other key performance indicators, is the product of complex forces. Measuring a firm’s effective price is complicated by the fact that not all billings are based on hours work. It is further complicated by the lapse of time between when work is performed and when it is billed. Work billed one period is not necessary the same work that was performed during that period. The mix of fee earners also has a significant impact on the effective price of the firm’s services. It is easy to get lost in the numbers and complexity.

Managing partners turn to simplifying tools and models to stay on top of key performance indicators. One such tool is Rolling Effective Rate. Ideally, rolling effective rates are calculated using only “billed work”. While the majority of work in most midrange law firms is billed based on fee earner hours, some of the work will have been billed as a flat fee. Other work will have been performed under a contingent arrangement or some other creative billing arrangement. The billing method doesn’t matter. What is important is to capture the hours that were invested to produce those bills. Thus, in order to accurately measure rolling effective rates, you need a law office business system that measures the hours worked for bills that have been issued by the firm-collected or not. For accurate measurement, work that is unbilled (still in the firm’s work in process) is excluded from the rolling computation.

Unfortunately, many firms may find that their law office business system is not capable of separating hours between those billed and those unbilled for the selected period. In such cases, the computation uses the hours worked for the most recent 12 months compared to the amount billed for the same period. The computation will include 12 months of work and 12 months of bills; however, on average, two of the work months and two of the collection months will be a mismatch. The distortion will be immaterial enough in most cases to produce a close approximation of the firm’s Actual Effective Rate for the period.

The Excel® spreadsheet below illustrates the rolling effective rate computation. In the example, the effective rate is computed by personnel type and a weighted average is used to compute the Effective Blended Rate for the firm (click graphic to download).

Arriving at the Effective Rate by Personnel type is important for modeling future results and for comparing the firm's pricing to benchmarks of peer firms.

Once we know your effective rate, simplified models can be used to predict the future or test the impact of changes in the number or mix of fee earners. The model can also be used to see the impact of increases or decreases to the firm's effective rates. The Fee Revenue Model shown below is an example of such a tool (click graphic to download).

Likewise, the firm’s overall blended rate can be used for modeling per-partner income as illustrated in the following Law Practice Business Model (click graphic to download).

When it comes to using the Rolling Effective Rate to change future performance, law firm leaders will need more than the firm’s Blended Rate or Effective Rate by Personnel Class. They will need actionable information---the kind of information that they can get from Business Intelligence (BI) tools like Active Information from Juris. They will want to know the Effective Blended Rate by Billing Attorney, for example. They will want to be able to drill down to see Blended Rate by Client and Matter. They will want go deeper to view the mix of personnel handling the work. Firms organized by practice class will want to know the Effective Rate by Practice Class and then drill down as needed for actionable information—information that can used to make decisions that change future outcomes.

Keep in mind another performance metric that will affect the final revenue numbers: realization. While it starts with what you bill, you still have to collect from the firm’s clients. Write-offs, adjustments and bad debts will determine the final fee revenue numbers.

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.

New Service to Increase Big Business Access to Law Firms

Admin — Wed, 22 Aug 2007 17:32:19 GMT

Midrange firms have the price and service quality advantage over big law but don’t have the access to Fortune 1000 companies. If OnRamp is successful, that is about to change for participating law firms.

The idea behind OnRamp is to create a space for corporate legal consumers to go to find answers to frequently asked questions on very specific topics. The answers on the site are contributed by participating law firms with deep knowledge and expertise in the topics.

The new on-line community will level the playing field. It will not matter if you are solo, a 20-attorney firm, or a firm with 1000 attorneys. The prospect discovers your law firm. Your posted answers establish your credibility. The two of you are likely to do business.

The internet has already increased the accessibility of midrange firms for the corporate buyer. A select number of firms have used blogs to establish national and even global credibility in specialized areas. Corporate buyers increasingly turn to the Web to search for (or to validate the fit of) a law firm experienced in particular matters.

OnRamp is another avenue for the small and midrange law firm to catch the eye of corporate legal departments. It has the advantage of being a central depository of answers to which corporate counsel can go first in their search to match a law firm to a particular matter or style of matters.

My understanding is that Legal OnRamp is the brainchild of Mark Chandler, the General Counsel of Cisco Systems. It is new and not fully operational but is currently accepting content from participating law firms. To become one, you have to first contact the OnRamp team and earn an invitation to participate.

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.

Billing Practices That Cement Relations with Law Firm Clients

Admin — Wed, 01 Aug 2007 17:07:59 GMT

I hear the same thing over and over again. It isn’t so much the cost of legal services as it is the lack of predictability. Business managers abhor legal fees because of a feeling that they are beyond the manager’s control. They are unpredictable. The delay between when legal work is performed and receipt by the client of the law firm’s bill makes things even worse. A corporate manager can’t turn off the flow of legal expenses that are already in the law firm’s unbilled pipeline for work performed.

Law firms appear to be desensitized regarding their billing practices. Yet it is a firm’s billing practices that drive clients away. Not that the client will be any happier with their new choice. Rather than being drawn to another law firm because of higher value added, it is dissatisfaction with the existing firm’s practices that sends the client in search of something better.

What is needed is deliberate sensitivity by billing attorneys to the client’s concern over legal bills. Those concerns aren’t the same for every client’s contact. Nor are they the same for every case or matter. Nevertheless, for most clients the following steps will go a long way toward cementing your relationship for the long term.

Offer a retainer relationship for all minor matters. If your are unsure about the level of work involved, shorten the period before the retainer is renegotiated or include a provision that lets you renegotiate at any time the volume of routine legal work changes materially in the judgment of the firm. The objective is not to undercharge for services; it is to remove the surprises in your relationship.

Offer an estimate for all matters or cases handled outside of the retainer. If necessary, break the matter into phases and provide your estimate for each phase. Revise your estimate as circumstances change. One client said, “We don’t hate bad news; we hate to be surprised with bad news!”

Do not let unbilled charges accumulate. Clients prefer to be billed promptly for work performed. The typical law firm takes almost 70 days before it bills for work performed. Clients find that delay to be a disservice and they find this un-businesslike practice a negative reflection on the law firm. At the end of each month, or more frequently, bill promptly for all services performed.

Discuss your billing procedures with the client. Can you send your bill directly to the client’s accounting department with an information copy to the firm’s client contact? Do your plans regarding the presentation of information on the bill meet the needs of the client contact? Get rid of charges for soft costs, which produce more aggravation than revenue. Instead, increase your prices for services to offset any reduction in revenue due to the elimination of routine soft costs like faxes, telephone, copying and so forth.

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.

Law Firms and Corporate Clients Continue Their Dance

Admin — Mon, 09 Jul 2007 18:27:33 GMT

The June 2007 Corporate Counsel reported that Circuit City is requiring law firms to discount legal fees by three percent for prompt payment. What is interesting about this is that the interviewed Circuit City representative reportedly explained that they were already paying promptly and decided they should get something for it. By "prompt", they apparently meant in 20 to 30 days. Outside of the legal sphere, that would be “normal trade terms”!

Asking for a three percent discount for making payment on time takes gall. At the end of the year that three percent discount adds up to a 36% annual interest rate on the average amount involved. Giving in to the discount signals that law firms are simply willing to take whatever punch their big corporate client throws at them. Those big accounts look great until you realize that they have you around the throat. Or do law firms give in to those demands because a lot of legal billing may be like a balloon? Squeeze it here and it bulges there.

In the long run, what the client pays and what the law firm receives have to be a fair deal for everyone. Without that fairness the relationship will not last. Law firms should be proactive in reporting the value delivered. Corporate clients should be investing in systems that track the comparative value (benefit vs. cost) of its various attorneys rather than squeezing here to just experience a bulge there.

Morepartnerincome.com is sponsored by Juris, Inc. 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.

Law Firm Survival Is Tied to Its Blended Rate

Admin — Thu, 03 May 2007 18:03:00 GMT

Paul Calthrop, writing in the May issue of the Harvard Business Review, gives all of us something new to think about regarding pricing. Calthrop is a partner in Bain & Company. His article is titled “Higher Net Price—Or Bust.”

He makes the point that lower pricing may be a viable strategy for entering a new market or launching something new, but otherwise it signals a path toward commoditization, which he says “…inevitably undermines the firm’s prospects of achieving sustainable revenue and profit growth."

For a law firm, Calthrop’s warning reinforces the importance of tracking the firm’s effective blended rate metrics. It also explains why it is so important for the firm to have strategies and tactics in place to increase its blended rate. You don’t achieve a continuing increase in the firm’s effective blended rate through price increases. It comes from increased value:

Increasing efficiency coupled with pricing alternatives
Moving into more valuable practice areas
Increased specialization
Adding new value to established services—convenience, response times, certainty, etc.
Moving to new clients for whom your services have higher value
Etc. Etc. Etc.

Price increases are still important, but the typical pricing increase strategy for a law firm is the annual increase to cover increased operating cost. Adjusted for inflation, it has a zero impact on the firm’s effective blended rate. Moving the blended rate can, however, be achieved through better pricing strategies:

Multiple standard price sheets pricing higher value services at appropriately higher prices
Targeted price increases to move underpriced services, clients and matters to higher competitive price
Having more prices based on the deliverable versus the hours worked, i.e., Alternative Pricing

And the effective rate can be increased through improved collection and faster billing of services. Both improve realization and decrease lost revenue arising from adjustments and uncollectibles.

Managing partners need to take Calthrop’s warning to heart. If your effective blended rate is not moving up, then the firm is increasingly engaging in areas undergoing communization. Short of reinventing how legal services are provided, that will lead to an unsustainable trend of declining partner income.

For more on measuring and tracking blended rate, go to the prior post Blended Rate and Utilization Model for Law Firms.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-3740, e-mail info@juris.com ,or go to www.Juris.com.