Legal Marketing: Alternative Billing Can Still Be a Competitive Advantage
Over the course of the next five years hourly billing will be phased out by most General Counsel in large corporations. You can already see the change coming. As an example I submit this article from The Metropolitan Corporate Counsel website. The article sites a survey conducted by Leader & Berkon in mid 2010 that found 56% of in-house counsel believe the trend to move away from hourly billing is growing. The survey also found that one third of those companies had selected outside counsel because of an alternative fee option.
What This Means for You
Moving away from hourly billing is still being viewed as a competitive advantage. But it will become the norm…soon. You should get on board.
You have an opportunity to become one of the leaders in alternative billing. You can still get out in front of this movement and champion your “client friendly” fee structure as a competitive advantage. It will get you more meetings with senior level decision-makers. It will get you more opportunities at work you would never have been considered for in the past. It will allow you to take business from many big law firms who are slow to adjust.
But first you need to embrace alternative billing.
Moving away from hourly billing is still an option because many clients do not know there is an alternative. Once the adoption of alternative fees reaches critical mass, you will be forced to change in order to survive.
Make a move to alternative fees and use it in your legal marketing. It will not only help align your interests with your client’s interests it will help you attract more clients.
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EmailThe Billable Hour is Dead but Most Lawyers are in Denial
Many lawyers laugh at me when I tell them that hourly billing will be the death of their law firm. This is particularly true of the BIG LAW firms. You see, to BIG LAW hourly billing is an addiction no different than an addiction to crack or heroin. Through 2007 they were used to changing whatever they wanted (on an hourly basis) for their service and people would pay it.
Well that is changing.
Last year Pfizer (you may have heard of them) announced they were no longer going to pay law firms by the hour. They created a group of sixteen law firms to whom they give all their legal business. These sixteen law firms knew they were going to make less money in the short term but they felt they would make more money over the lifetime of their relationship with Pfizer. That is a focus on client lifetime value.
You don’t have to take my word for this. Watch this video from The Wall Street Journal. It is an interview with Amy Schulman, Pfizer’s General Council. Listen to her carefully.
What Ms. Schulman is really saying is: “If you charge by the hour, your law firm will not survive.”
When I utter this statement in front of litigators, they laugh at me. That’s right. Even though we have just come through the worst recession since the Great Depression and non-bankruptcy legal work was scarce, most litigators will not embrace a fee that is not based upon hours billed. Fortunately, it is not my problem. I just don’t work with them.
Let me explain why:
As someone who gets paid to increase the profitability of a law firm, if I work with a litigation firm that does not bill by the hour, I can get them as much work as they can handle. Often times, I can get them more work than they can handle. And the firm as a whole makes more money – in most cases DOUBLE what it made under an hourly billing model.
Here’s how:
Our Value Based Fee Model has a flat monthly rate assigned to each client. The law firm then assigns a “managing partner” to that client. The managing partner handles a good portion of the legal work the client requires. In large clients, Managing Partners are assigned per matter.
The Managing Partner’s salary is charged directly to that client account (internally). The law firm then has a pool of other attorneys (usually less costly employees) who handle the day-to-day matters from the client (matters the client believes should settle, some transactional issues and legal research). There is a “trigger” built into the agreement with the client that automatically increases the monthly rate if a matter goes past a certain point.
Structuring the legal fees in this way, the client can make a decision on how to dispose of a case with full knowledge of the legal fees.
This is a competitive advantage for the lawyers with whom I work. Their clients always select this approach over the approach of a law firm that bills hourly.
So if you still bill on an hourly basis, let me tell you how my clients eat your lunch five days a week:
- They hire the best lawyers (Ivy League lawyers with 10 years or more of experience) and they pay them well (Why not? They know how much profit each of their clients will produce because they have long term contracts)
- Part of the lawyer’s time is REQUIRED business development
- Our law firms bill their clients using the model outlined above
- They budget based upon revenue (which we can predict with great accuracy)
So as you can see, if you still bill hourly, it is only a matter of time until my clients find your clients and steal them.
You can keep your head in the sand or you can embrace the future and move to this type of model.
When They Show Up, Bill ‘Em
Do you feel like you need to offer a free consultation?
Isn’t that part of law firm marketing 101?
No it is not. In fact, it is terrible law firm marketing.
Free advice is worth what you pay for it.
If you want to do anything for free, have an administrative assistant or an associate interview the prospective client to see if they qualify to work with you.
Yes. I know. Your competitors all offer free consultations. They all sit with clients for an hour at a time and listen to their tale of woe. They empathize and then, if they are lucky, the client signs up with them.
Did they teach that in law school? Was the class called; “How to be a doormat?”
The lawyers I work with do not give free consultations. They realize the value of their time and they demand clients respect it.
This is one of the easiest changes to make in your law firm yet it gives so many attorneys anguish. I am not sure why. Maybe it is insecurity or maybe it is fear of the competition.
If you do none of the other things I recommend on this website, at least start charging for consultations.
And so that you know that I remain congruent with my own advice: I charge $1,500 for a consultation. But that payment can be applied to any subsequent work we do together.
Few people waste my time. But you don’t have to be a law firm marketing expert to have people respect your time.
If you want people to respect you, you must respect yourself. That starts with respecting your most valuable resource, your time.
What You Get Paid For
The International Space Station is orbiting the Earth and the computer in Mission Control that regulates the oxygen regulator up in the spacecraft has broken. It needs to be fixed or the three astronauts conducting experiments in space will suffocate.
Joe Jamoke is in charge of computer repairs at NASA and he calls Acme Computer Repair to come out and fix the problem. The Acme guy arrives, walks up to the computer and lifts the cover. He eyeballs the situation, reaches into his bag, and pulls out a screwdriver. He snakes the screwdriver into a tight crevice and tightens a screw that has become dislodged. After removing the screwdriver, the repairman puts the cover back on the computer, flips the switch and the machine immediately lights up and begins to function as it should.
The repair man writes up an invoice and hands it to Joe. Joe is shocked to see that the bill is for $1,000. He turns to the repairman and says:
“This bill is outrageous. You only turned one screw. How can you charge this much for so little work?”
Before the repairman can even answer, Joe continues his rant.
“The only way this bill will ever get approved is if I have an itemized invoice to present to my boss. Please write up an itemized invoice.”
The repairman sits down and writes up the invoice as requested. He presents Joe with a new bill. It reads:
Invoice for Services
Turning One Screw…Fee = $1
Knowing Which Screw to Turn…Fee = $999
Total…$1,000
In the example above, the repairman did not get paid for the amount of time he put into the job. He got paid for the value he provided. This value came in the form of his expertise at repairing sophisticated computer equipment. The fact that the repair was done in a short period of time was probably advantageous if only mildly relevant. In this scenario billing by the hour or billing by the actual work performed would have been inappropriate. The only appropriate way to bill for the service rendered was value-based billing.
The situation described in this fictitious little scenario is identical to the situation most lawyers find themselves in everyday. The service they deliver to their client has significant value but they charge for the amount of time they spend actually doing the work. Most lawyers do this because they do not know how to properly bill for their services.
If you are one of those lawyers (an hourly billing lawyer who cannot figure out how to straighten up and charge an honest fee) I am going to give you a tremendous gift. I am going to introduce you to a process that will help you determine how to bill a fair fee and have clients love you for doing so.
Step One: Become a Recognized Thought Leader
This simply means packaging your knowledge, talent, skills and experience and showing the prospective client how it differentiates you from everyone else who does what you do. You can do this by writing and publishing papers, speaking at industry conventions, being quoted in the media, teaching college courses, etc.
Step Two: Assess the Situation and Determine the Value of the Solution to the Client
Will the client avoid a potentially significant legal judgment if you negotiate a settlement? Will the agreement you draft protect the client from financial harm? Does the contract for that $2 million dollar property insure that the client owns the air rights above the building as well?
All of these things are valuable. Interview the client and have him put a dollar value on the benefits of the matter at hand.
Step Three: Present Your Fee as a Fraction of the Value Provided
Be careful in this step. I am not talking about charging a contingency fee. I am talking about a comparison between the value of the potential outcome and the amount you charge the client.
Example One:
The client needs a contract to purchase a $20 million asset. Lawyer charges $80,000 to negotiate and draft the agreement. The lawyer has done this two dozen times. He is a true dealmaker. The fee, which is less than one half of one percent of the total deal value is good for both parties because there is no incentive to spend any more time than is necessary working on the matter.
Example Two:
A client hates his wife. He wants his marriage dissolved as quickly as possible. He has significant assets but the laws of the state of residence are clear on spousal maintenance and asset division. The lawyer he selects is excellent at negotiating divorce settlements in an acrimonious setting. Speed of resolution has enormous value for this client. He happily pays $50,000 to get the divorce finalized within 90 days.
Example Three:
A radio personality on a Christian Fundamentalist station is arrested and charged with DUI. If convicted, he will lose his job and possibly never work again as he is renowned for his position of moral superiority. He hires a former prosecutor who understands the flaws in the alcohol detection equipment and police procedure because he spent 15 years prosecuting these cases. Retaining this lawyer and possibly getting the charges dismissed is highly valuable to the client because his seven-figure income is dependent upon his exoneration.
There are scenarios in your daily work that can productively apply a value based billing model. In fact, let me be perfectly clear: There is NO scenario…none…in which a value-based billing model is NOT applicable.
The challenge for you is not IF you can make value-based billing work in your practice, the challenge is WHEN you will make it work in your practice.
One thing I know is absolutely true: You have a competitor using value-based billing right now to sign up cases you deserve.
Stop punching a time clock. Isn’t it time you get paid for the value you provide?
Why Is It So Easy To Hire You?
Every so often I will point out things I think are worth reading for people interested in law firm marketing. This week I came across a post by Seth Godin on open buying and open selling. Seth is talking about the ease of getting something and its true value to the end user. This is a concept that is near and dear to me. If something is easy to get, how much could it be worth?
Let’s say you need to see a heart surgeon. It’s not an emergency but your doctor has detected an irregular heartbeat. The doctor doesn’t give you a referral (he doesn’t believe in them). So you are forced to find a heart surgeon on your own.
You go to the Internet and you call the heart surgeon who comes up on top in a Google search. You call the office at 9AM and get an appointment for 11AM. After a FREE consultation, you shake the doctor’s hand and he agrees to operate on you at 1PM.
What do you think? Is that guy most likely a good doctor or a bad doctor?
I know that sounds ludicrous but that’s what happens with many lawyers.
You can pick up the phone at 9AM, make an appointment for today at 11, go to the office for a FREE consultation and have an attorney retained by 1PM.
And the attorneys who operate this way wonder why they have so many clients who shop around.
It is not easy to hire a good lawyer. Good lawyers are selective in the clients they accept. Good lawyers are always busy…too busy to handle same day appointments or walk-ins…too busy to offer FREE consultations.
If you want quality clients you need to have a process in place to select them. If you want clients to listen to your advice they must perceive it as valuable. Law firm marketing helps influence that perception but commonsense must also have a role.
Clients get what they pay for…and they know it.
The Best Marketing for Law Firms Never Promises Anything
The bodies that govern law firms in every state have legislated against representing a potential outcome to a client. In part, this stems from sleazy practitioners making false or misleading statements in order to engage a client.
I am regularly approached by attorneys who “want to know the tricks around” this rule. Let me be clear: There are no ETHICAL ways around this. Excellent attorneys do not want to get around this. Good marketers and good marketing for law firms should never attempt to get around this rule. Here are three reasons why:
Outlining all the potential outcomes in a case increases your credibility with the client.
Attorneys can never promise an outcome in a case. Even giving the hint that a positive outcome is possible can sometimes lead to trouble. But most attorneys are also hesitant to discuss the potential negative consequences of the legal action.
Covering the entire spectrum of possible outcomes is something that good attorneys do with potential clients. They don’t stress the positive or the negative. The simply help the client understand the implications of each decision.
Giving the client the information about all realistic scenarios, up front, is something that enhances the attorney’s credibility in the eyes of the client.
Being transparent about the possible negative outcome increases the urgency.
Setting realistic expectations helps clients evaluate you fairly.
You can promise to return a call within 24 hours. You can promise to be honest with your client at all times. You can promise to deliver the developments on the case to the client as quickly as possible. But making promises you can’t keep is never a good idea in life or in marketing for law firms.
A Law Firms Marketing Madness: Cutting the Budget is a Bad Move
Many large law firms have been cutting their marketing budgets during the past couple of years. This is being done as a reaction to the broad economy and the perceived weakness in the demand for legal services. These law firms marketing madness will only make things worse.
Cutting the law firms marketing budget during difficult economic times is the wrong approach. A down economy is exactly the right time to spend MORE on marketing. Here are three reasons why:
Clients still need you to solve problems.
Do you really think there is a shortage of legal issues during a down economy? Come on now. Clients have either chosen to ignore their issues or they have put off fixing them until the economy improves. Your job (as a law firm business owner) is to help potential clients realize that their problems must be addressed now. It shows that you still involved in the community/industry.
Since we practice educational marketing, we are always providing value to our clients.
If you continue to provide this value, even during an economic downturn, you will build your credibility and goodwill within your community/industry. Law firms marketing in a recession are perceived as strong. Law firms marketing using educational marketing provide their clients and prospective clients with value. The combination of these two factors makes them unstoppable.
The return on investment is still there.
Think like a business owner. If you invest a dollar and you receive three dollars in return you have made a good investment. That’s what marketing is all about. Good marketers find out what works and they invest in it and leverage their investment to receive a great return.
Law firms marketing in a recession are rare but that’s all the more reason for you to INCREASE your marketing during tough times. Make the investment.
You’ll be glad you did.
Time For an Ethical Enema
Most of my work is done with sole practitioners and small law firms. I enjoy working with them because they are generally highly receptive to the things I teach. Big law firms on the other hand often have stupid requirements that get in the way of old fashioned commonsense.
Recently I met with a BIG LAW firm attorney (let’s call him Mr. Big) as part of an interview series I am doing with successful lawyers. This guy came highly recommended by his Managing Partner. My interview with him was short.
I ended it after the first question.
My first question to Mr. Big was: “What makes you so successful?” I thought he would say something about client service or a dedication to quality research or diligence in pursuing justice for his clients. I thought he would share a secret with me that I could, in turn, pass along to my clients.
Here was his answer: “I’m successful because I bill the crap out of my clients.”
I was stunned. Mr. Big went on the regale me with stories of how he has billed over 300 hours each month for the past 3 months. For those of you who are not great with math that means he is billing 12.5 hours per day, six days a week or billing 10 hours a day for an entire month straight (for three consecutive months).
So Mr. Big bills all of this time and he NEVER takes a day off right? Absolutely not. He works a half day one day on the weekend and takes the other day completely off. He says he usually makes up for that half day by “cutting out early to play golf one day during the week.”
I can’t say I was shocked by this. I know it happens quite a bit. The problem comes when these people submit their bills. If they submit an hourly bill and it is not true they are perpetrating a fraud.
The argument people make to counter this point is that they are billing for “the time it would take if someone else did the work.” In other words, because the attorney is highly experienced in this area of the law, he can get something complicated done quicker than others with less experience.
That’s great. If you have that experience you should receive a premium for your services just don’t extract it by padding the number of hours worked. Charge a flat fee, a value-based fee, and explain to your client that they are receiving the benefit of your experience.
There are no less than 30 different ways to structure fees in an attorney/client relationship. I cover these ways with my clients each and every day. Hourly billing is BY FAR the worst billing method. Not just because the client will get screwed (early and often) but because the lawyer will often get screwed as well (if you don’t think clients report overbilling to the state bar, think again).
If you need some help crafting an alternative billing methodology, give me a call 888.692.5531. Don’t put yourself and your client in an uncomfortable position – the position of a person who has received an ethical enema.
Money Is Important
Let’s have a heart-to-heart conversation.
You need to make money. Maybe even more money than you are currently making. Even if you don’t need it, you want it.
There’s nothing wrong with that.
Let me say that again.
There is nothing wrong with wanting to make more money.
You can love the law and want more money.
You can love your family and want more money.
You can provide great value to your clients and want more money.
You can be a good person and want more money.
Money is not bad. It is good.
So why do so many attorneys have a complex about making more money?
A law firm is a business.
Businesses exist …to make money.
Don’t get hung up on the negativity about growing your practice, raising your rates or charging for initial consultations.
Deliver fair value and charge accordingly.
Got questions? Call me.
Dave Lorenzo 888.692.5531
Perception of Value is in the Eye of the Client
Sometimes it is impossible to see the value we provide to others because we are too close to the day-to-day activity of our profession.
This is often the situation I encounter when I speak with attorneys who need help with marketing. They are perplexed because there are other lawyers in their field (or in their area) who command higher fees or seem to land more lucrative clients.
If you find yourself in this situation the answer is often not found in adjusting the services you provide but in helping your clients (and prospective clients) understand exactly how valuable those services are.
Here are some powerful points of value that attorneys should stress in their relationships with their clients. Although there are ten points on this list, I am willing to bet that most attorneys (and some clients) will overlook at least five or six.
Let’s see how many you recognize – but more importantly: How many do you think your client will recognize in you?
Avoiding Exposure to Risk
Clients need to be able to move forward aggressively with their business activity. It is no coincidence that the expression “Fortune favors the bold” is the mantra of many successful business leaders.
In order to move forward in a swift and aggressive manner, a client needs to have someone watching his back – from a legal standpoint. Incorporating your legal advice into a strategic plan can be extremely valuable.
Clients need to understand the risks they face when they move forward with any venture. They may choose to ignore your advice and proceed but at least they will have the opportunity to understand what lies ahead.
Solutions to Problems
You will work with many diverse groups of clients throughout your career. This experience should be a valuable asset to the people you advise. The things you have seen and done should not only benefit your firm – your clients should benefit from your experience too.
This is the essence of consulting. Your firm brings experience and education to a situation to help a client make a good decision.
When a client faces a particularly challenging business problem, he should be able to call upon you for council in the law and also on the business matter. Your perspective is valuable and can help the client solve problems.
Maturity of Judgment
Your judgment as an attorney should be developed from a rational review of the facts supported with case studies from past experience. This is what encompasses maturity of judgment.
After you review the facts of the matter you should find cases that represent potential results. Presenting each case in a fair and impartial way is your responsibility. This allows your client to make the best possible decision.
Clients may be emotionally invested in one point of view over another. It is this maturity of judgment that will help them come to the best decision for their firm. The value you provide comes from boiling down the issue and helping the client review it from a rational point of view.
Thorough and Comprehensive Assessment
In conjunction with the maturity of judgment you exhibit, you should also provide your client with a thorough and comprehensive review of the matter. You should leave no stone unturned.
The piece of mind this type of review provides the client is invaluable. It is your job to help prevent as well as cure your client’s sleepless nights. Providing this type of security is worth its weight in gold.
Communication by Proxy
Sometimes your client will need somebody to be the bad guy. That is a role that you should be able to fill. Your duty to represent your client zealously can help when it is necessary for your client to take an aggressive posture in a dispute or a negotiation.
Similarly, you can approach a client’s rival on his behalf, as the “voice of reason”. This will often allow your client to save face if he has taken a tough position that he now finds untenable.
Timely Performance
If your client does not have the time or resources to review a matter, your value is enhanced by your direct focus. Giving the client the gift of time is something that is seen as incredibly valuable.
Specialty
Your expertise in a particular area of the law is important and valuable. A client (or his general council) cannot be an expert on all the nuanced aspects of each and every facet of the law.
Leverage your education and experience in as narrow a nice as possible. You must own that nice in the client’s eyes. This expertise will pay a handsome return on investment.
Ongoing Support
Business leaders trust very few people. Individuals who have earned that trust are people who are relied upon again and again.
You availability to provide ongoing support to your client is an asset. If you are accessible when he needs you, and you provide sound advice, you can command a premium that your client will gladly pay.
Protection from Future Threats
In business, change is constant and the future is uncertain. If you have a good track record with a client he will find comfort in having you by his side as he heads into uncharted waters.
This is a highly valued aspect to any professional relationship yet it is frequently overlooked. When your client thinks about the team he has assembled to charge forward into the future, you should be one of the first people who come to mind.
Exclusivity
When you are good, and I mean really good, your clients will want to keep you from their competitors. They need to pay handsomely for this privilege. Exclusivity is tremendously valuable (particularly in a narrow niche).
Help your clients see how good you are and they will want to lock you up and keep you all to themselves.
Keep in mind that your clients may need some assistance in recognizing some of these points of value. It is your job to help them understand that just because something is intangible doesn’t mean that it has little or no value. (Faith and love are intangible but they are coveted by most humans.)
Assessing your relationship with your client and finding subtle ways to remind him of your ability to deliver on the points listed above will keep your relationship financially strong.
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