Your clients do not order legal service a la carte. They can’t order one deposition, two filings, and a side of legal research. They are paying to have their disputes resolved. That said, clients want to limit the ultimate cost of any dispute resolution at the outset of a matter.
The Alternative to Alternative Fee Arrangements
Clients want rational pricing. That might mean fixed-fee or other alternative fee arrangements. But most often, it means tried-and-true hourly billing.
For example, imagine a law firm sets a standard price for a deposition at $25,000. Suddenly, it becomes necessary to depose the CEO of the company, which almost certainly involves more resources, attention, and hours worked. Can you do all of that extra work essentially for free?
Billing for Litigators: Know Your Business
There are e-billing services like Tymetrix that help law firms set prices for services. However, we believe it’s always best to look internally and determine what type of prices your law firm can support before accepting the going market rate.
Start with Fee Negotiations
This may sound obvious, but start by talking to your client about their specific concerns related to fees. That allows you to determine pricing options they are willing to consider and help you negotiate more effectively.
Unfortunately, many lawyers prefer to avoid fee conversations all together. But it is better to make sure partners and senior members stay involved in the discussion of fees. To remain sensitive to your clients’ concerns, you should:
- Directly approach the subject of fees with clients
- Assess the scope of a project
- Learn how to build a high-level budget
Another basic skill lawyers often need help with is, somewhat ironically, negotiating. Too often a lawyer will just accept a client’s price request.
What Clients Fear
Client concerns start with cost savings. During the recent economic downturn, many companies leaned on their legal departments to squeeze more value out of their outside counsel.
But other factors are just as important, including predictability (i.e. over a given time period), certainty (e.g. for a matter or group of matters), or even risk-sharing, where a firm must take on some level of fee risk if costs explodes.
Profit and Scenario Modeling
One of the first places clients try to control costs is staffing. Firms ought to breakdown how a deal will be handled and staffed to budget for profitability. Past matters rarely deliver a budget template or even an accurate estimate in developing a budget for a new matter.
In our experience, budget building is more often a high-level effort, only going into task-level details in order to identify potential deal-breakers and case-killers.
Better Legal Billing Starts with Monitoring
Once a pricing deal is in place, monitoring is the function that keeps the lawyers updated on the financial status of the deal. This includes providing the partners with regular updates for performance-to-budget numbers and other metrics.
Firms must understand their potential pass-through technology costs. It is always preferable to have an IT vendor in place with a known cost structure before a matter begins. Otherwise, ballooning technology costs can destroy a matter late in the process.
Early Case Assessment and Analytics
We do eDiscovery analytics, but that is only one part of understanding the scope of your data challenge is just one of your duties. Clients don’t want estimates that range from $10,000 to $10,000,000, even if that range is not an exaggeration.
It doesn’t take advanced analytic software to track your costs – a simple spreadsheet can identify where your cost centers are. Better insight will help your firm move from a defensive posture – trying to hold onto profits, and instead focus on proactive business development efforts.
It’s easy for clients to demand lower fees from their outside counsel. But lawyers don’t sell widgets. Legal advice is not a commodity. Clients pay to have the best legal advice possible. But better legal billing planning can go a long way to helping get better results without underselling your firm.
(And if clients are still not happy after a matter is done, Clio has a great article about the collections for legal services.)