Make More Rain : technology, alternative billing

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)

The Gap Between Theory and Application of Alternative Fee Arrangements

DerekSchutz — Tue, 09 Mar 2010 14:00:00 GMT

"There's many a slip 'twixt the cup and the lip" If anyone has read a legal blog in the last year, there is a very high probability that you have read one about Alternative Fee Arrangements and/or pricing. On this site alone we devoted...(read more)

Corporate World Still Hesitant About Law Firm Billing Alternatives

Admin — Fri, 19 Jan 2007 19:35:08 GMT

The January California Lawyer (page 8) reports that lacking comfortable alternatives, lawyers and clients are staying hitched to the billable hour.

The article, Driven by the Clock, notes that C-level executives on the corporate side seem more reluctant than law firms to abandon the status quo—the traditional hourly bill. Offered an alternative arrangement, one corporate executive rejected it, explaining, “I need someone watching my back. I already have an investment banker whose only interest is this deal is collecting his commission.”

The client did not want legal advice biased toward a certain outcome. One of the complaints against the “billable hour” by the business world is the perceived conflict-of-interest that may result in the lawyer finding things to do just to increase the bill. The article illustrates that alternatives to the billable hour can interject their own versions of perceived and real conflicts-of-interest into the lawyer/client relationship.

As observed by Brad Brian, past chair of the ABA’s litigation section, “There is an interesting dance going on. A lot of clients want attorneys to think about billing alternatives, but they’re nervous about them too because there are risks on both sides.”

There is no single pricing solution that will make everyone happy all of the time. It follows that a law firm should not have a single pricing model. Where alternative pricing fits, alternative pricing is a road toward more partner income and happier clients.

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.

The Entrepreneurial Law Firm in Three Steps

Admin — Thu, 25 May 2006 17:52:44 GMT

The Entrepreneurial Law Firm in Three Steps

The entrepreneur’s sprit is a restless one. Here is a three-step classic road map that has been used by many entrepreneurs to transform a moderately successful service business into a significant financial success.

1. Figure out how to package the business’ services in order to market and price them like a product (the razor strategy)

2. Figure out how to add a service component to the packaged service product (the razor blade strategy)

3. Add amenities around the product and services to create a unique, high-value experience for the customer.

Can the tried and true three steps work for a law firm? There are entrepreneurial firms already doing it. Here is a hypothetical example just to illustrate the application of the three steps:

1. An estate practice bundles its services in several different packages, each targeted to different segments of the population—the up-and-coming professional, the young married couple, the mature high-net-worth couple. The packages are sold for a fixed price, and promotional materials use the same look and feel as the brochure for a car.

2. An estate practice adds an optional monthly fee to its service package. This razor blade service includes updating the documents for changes in law and keeping the client informed of any changes or expected changes in taxes, laws, court decisions, and regulations that might affect their estate or estate plan.

3. The estate practice adds an extension to its office along with upscale hospitality staff, all specifically designed to cater to higher-net-worth clients. Everything about their high-worth facility and services is designed to reinforce the special VIP status of the firm's high-net-worth clientele. The experience provided for the client benefit raises the firm to an entirely new level, attracting high-net-worth clients.

The key is to focus on opportunities and to think strategically.

What does the firm do best?
Who are the prospects for our service?
What distinguishes one type of prospect from the other?
What is unique about each type?
How can we build our services to appeal to some of the larger segments of the prospect population?
What is the value proposition that appeals to those groups?
How could we price this to be a success with the selected targets?
What opportunities are there to provide a related ongoing service associated with the initial package of services?
What experiences, amenities, etc. would appeal to our target groups, making our relationship more valuable for them?

Can you apply the three-step strategy to areas where your firm excels? Give it a shot. Maybe the light will come on, and your firm will start operating at a new, faster pace—entrepreneurial speed.

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.

Protecting the Law Firm's Bottom Line

Admin — Fri, 16 Sep 2005 17:22:00 GMT

I just returned from TexLaw Management 2005 in Dallas where I hosted a discussion panel on the subject of Protecting the Bottom Line in a Complicated Marketplace. However, as I told the audience, an alternate title might be Can Both Law Firms and the Business Clients of Law Firms Get What They Want Out of Their Business Relationship?

The panel included yours truly as the moderator as well as:

Marc Capelluto, Microsoft LCA (Legal Dept.) Procurement Manager: Marc’s current focus includes “Microsoft’s Project 50” and redesign of Microsoft’s Preferred Provider Program. Project 50 is a program to drive $50,000,000 to the bottom line by cutting expenses.
David Hill Bradley, Partner with the prominent litigation firm Touchstone, Bernays, Johnston, Beall, Smith & Stollenwerck: As a legal service provider and partner, David is on the front line when it comes to this issue. His practice areas include transportation, business/commercial, premises, product liability and insurance.
William C. (Bill) Cobb, WCCI, Inc. (Cobb Consulting): Bill is one of this country’s experts when it comes to pricing strategies for legal services. He invented the "value curve" which has played an important role in understanding and guiding the pricing of legal services for over a decade.

The hype today is that alternative fee arrangements are rapidly displacing the billable hour. In addition, the news is full of stories about activities to control legal cost. Consider the following examples:

“It is only a matter of time before e-billing becomes the norm.” Corporate Legal Times, August 15, 2000
Eight Big Corporations Form Group to Get Better Rates From Law Firms. National Law Journal, August 15, 2005
GE just auctioned off purchase of legal services for seven practice areas to law firms who offered the "lowest rates." Corporate Legal Times, September issue
General Counsels agreed that a major part of the solution is “getting tough with outside counsel." Corporate Legal Times, September, 2005

Yet the reality appears quite different based on data from multiple surveys.

90%+ of corporate 1000 firms haven’t moved to e-billing
Law firms derived less than 10% of revenues from fixed fee arrangements

Among other related questions, the panel tried to answer the following:

What is going on and what is the driving force behind all of the activity?
What can law firms do to take advantage of existing conditions or at least protect their bottom line given the activity among corporate clients to control legal costs?

I believe the panel agreed with the following:

Legal Departments are under pressure from CEOs and CFOs who have to make the numbers.
General Counsels are struggling to achieve predictability, and that struggle manifests itself as an attack to reduce hours and rates.

One of the big questions of the day was the question “where are the alternative fee arrangements?" In spite of the hype, flat fee project arrangements and fixed fee portfolio services engagements are few and far between. I asked the panel, “Who is dragging their feet?” That is really an important question because only the flat fee and fee fixed arrangements address the underlying problem—the billable hour. On the law firm side, the billable hour method puts a lid on per-partner income and encourages inefficiency. On the corporate client side, the client has no idea what their cost will be. Flat and fixed fee arrangements would provide the solution:

Law firms would be able to profit from their own technology & efficiency.
Corporate clients would get want they want most—predictability.

Through give-and-take between the audience and the panelists, we may have arrived at an answer. We have a love/hate relationship with the billable hour. We may complain about it, but the truth is we have learned to live with it. Corporate clients are learning to manage it and that includes “preferred provider” programs to encourage or coerce law firms into doing right by it—“it” being the billable hour.

The fact is hourly billing is just an easy way to do business. We have gotten used to it. We know the dance steps:

You bill;
They adjust;
We both complain.

I think Marc Capelluto from Microsoft said it best—“I don’t care what method you use to bill me, as long as what you bill is what we expected." In short, the message from the corporate world is "we have a budget and if you want to do business with us, both of us are going to live within that budget."

Corporate clients aren’t looking for the cheapest legal services. They want law firms to be more efficient. Off-the-street hourly rates are too high and can’t keep going up. Law firms can’t continue to improve their “productivity” just by increasing the hours worked on “my” business. The billable hour is fine, but it isn’t a license to increase law firm profits at the corporate client’s expense. Law firms are going to have to become more efficient. As we neared the end of the session, the message took a surprising turn. It came down to the following:

Law firms do not invest in adequate management talent. As the discussion ended, Marc, talking about law firm operations, asked me "where is scheduling software, where are budgets, where is voice-over IP, where is online conferencing and collaboration, etc? Why aren’t law firms implementing at least the basics when it comes to operational efficiency?"

We know the metrics that drive law firm profitability. To succeed, law firms have to manage leverage, utilization, effective rate, realization, etc.—but not at the expense of one particular case, matter or book of business.

Companies like Juris, Inc. offer powerful tools to track Key Performance Indicators and manage law firm talent. Juris, Inc.’s application, MyJuris®, provides managing and supervising attorneys with situational awareness that should allow them to make sure that their talent is fully utilized, but also that they are not over-lawyering individual matters or books of business. There are extraordinary tools available to law firms—but they are useless without sufficient dedicated management attention within the law firm. Twenty-five percent of a managing partner’s time just will not get the job done!

The billable hour isn’t going away. Even though alternate fee arrangements are good for both parties, with few exceptions, neither law firms nor corporate clients are pushing flat or fixed fee arrangements. The panel and audience appeared to agree that the billable hour will continue as the preferred billing method. But, corporate clients are going to push down both the number of hours they accept and the prices law firms can charge. Law firms are going to have to become more efficient to protect per-partner income. By doing so, they will provide the corporate client with a smaller target. Doing so will require more dedicated management at the law firm level.