The Revenue Impact of Alternative Fees (Part 1 of 2)

The Revenue Impact of Alternative Fees (Part 1 of 2)

Last month, Of Counsel, the Legal Practice and Management Report, published an article based on The LegalBizDev Survey of Alternative Fees, which they described as "the most lucid and comprehensive study that we have seen on this topic."  This post reproduces the first part of the article. 

In the first few interviews conducted for our study, The LegalBizDev Survey of Alternative Fees, I asked participants to tell me the percent of revenue that their firms derived from alternative fees last year. Several declined to answer, and I concluded that many participants would be unwilling to disclose this number.

Later, I came to believe that there was a second reason for their reticence: Many simply did not know the percent of revenue in their own firms, a point that we will further discuss below.

So I switched to a less threatening approach and asked, "Last year, approximately what percent of revenue at AmLaw 100 firms do you think came from alternative billing; that is, fixed or contingent, excluding blended and other approaches that are strictly hourly?"

It can be hard to pin down lawyers, and when they were asked to provide an estimate for all AmLaw 100 firms, many initially said that no one could possibly know this number.  When they were prompted to provide their best estimate anyway, many said things like, "I've seen lots of different numbers that are kind of speculative," and, "It is a complete guess."

When they finally did offer a number, it was often hedged with statements like:

It depends on the experience people have with managing alternative fee arrangements once they strike the deal. If that does not go well, then firms and clients will somehow figure out how to get back to hourly fees. If it does go well, the percentage will increase.

If the economy comes back to full steam and the supply and demand change so that supply is short or at least more in line with demand, it will not change much. If, however, the downturn continues for some time and clients and firms are forced to learn new ways of working, that percentage could go up.

When we got past the hedging, people often offered a range rather than a single number, such as when one interviewee said, "My sense would be it might be around 20 percent to 30 percent, something like that."

To read the full post, visit the Legal Business Development Blog.