Earlier this week, I recapped one component of the General Counsel Panel at this year’s LSSO RainDance conference I attended. It focused on a request these General Counsel had, which was for lawyers to “know our business.”
Another theme that surfaced had to do with AFAs, or Alternative Fee Arrangements, often called Value Billing and a few other names depending on how you feel about them, or how they are executed.
They are one of the primary topics of interest these days among law firm leaders, including lawyers, legal marketers and others in executive management, not to mention those clients on the receiving end of these proposed arrangements.
THERE’S SOMETHING MISSING
As this GC panel discussed AFAs, it became obvious there can sometimes be a difference between a lawyer offering such an arrangement and the lawyer’s knowledge about what this truly means.
As you can see below, I Tweeted during the conference about this challenge as the GC was discussing it:
[By the way, these are active Tweets I am embedding, which means you can reply, ReTweet or Follow just by clicking in the Tweet below.]
GC Panel at #LSSO14: To suggest altrenative fees, and not show them, shows a lack of knowledge.
— Nancy Myrland (@NancyMyrland) June 5, 2014
WE JUST STARED AT EACH OTHER!
What does this mean? One GC on the panel made it clear he had been in at least one situation where an attorney came in to pitch work to him and, at some point in the discussion, the GC was asked if he was interested in, and willing to discuss, alternative fee arrangements or billing. The GC said “yes,” and the lawyer just stared at him, not sure how to proceed.
“We just stared at each other!”
It is obvious AFAs aren’t going away. Clients aren’t always happy with hourly billing because of the unpredictability, which leaves too much to chance based on who is working on the matter, how long it takes and other variables that are not necessarily anticipated at the beginning. One GC expressed his belief that hourly billing will never go away, and that alternative arrangements will definitely be a part of the ongoing fabric of the attorney-client relationship going forward.
CREATIVE BILLING IS ON THE RISE
We are seeing many creative arrangements that some consider a bit “out there,” but that are being received positively by clients. During one session at LSSO, presenter Susan Saltonstall Duncan, President of RainMaking Oasis, discussed an oft-cited example of a law firm thinking outside the [pricing] box.
Seeing value adjustment lines in invoices [ @valoremLamb ] more pricing approaches #LSSO14
— Nancy Myrland (@NancyMyrland) June 5, 2014
Patrick Lamb’s firm, Valorem Law, is actually adding a Value Adjustment Line to their invoices that allows the client to decide whether it wants to adjust the agreed-upon fee initially discussed. To many firms, this seems sheer lunacy, but it has gone beyond that for Pat and his clients.
Pat’s firm discusses this practice openly on their website. You can read more about it here, but the bottom line message is this:
“On each bill, we include our agreed upon fee. We also provide you a space to make any adjustment you feel is needed. It really is that simple.
Why do we do this? To demonstrate our unwavering commitment to client service, and to show you that whatever fee arrangement you have chosen, we have an economic incentive to consistently put forth our best effort.
Ask the other law firms you use if they are confident enough to let you adjust their fees each month.”
As you travel down this path of incorporating alternative fee billing into the business of your firm, keep in mind that value-billing doesn’t necessarily mean you make more money. It means you are providing an alternative to the formulaic, standard, unpredictable, often-irritating hourly method of billing that firms have used for decades.
THE END GOAL: IT’S NOT ABOUT YOU
The end goal is to provide an arrangement that works for both firm and client, but mostly for the client. If you have their budget and their goals in mind, you can end up with a billing arrangement that creates client loyalty. Don’t ever forget that this is about the client, not about you. Yes, you have to be profitable to survive, but you also have to have happy, satisfied clients or you’ll never be profitable.
I also suggest you watch the long-term results of the AFA you are proposing to make sure you are true to the original intent of the “new” arrangement. Don’t do what my friend, ILN’s Director of Global Relationship Management, Lindsay Griffiths, reported hearing about at the Legal Marketing Association’s P3 (Pricing, Process Improvement and Project Management) Conference today in Chicago.
Interesting – firm says they’re going to give a 20% discount. Metrics showed because of rates being raised, it only was $7 savings #LMAP3
— Lindsay Griffiths (@LindsayGriffith) June 12, 2014
YOU MIGHT DO MORE HARM THAN GOOD
If you plan on raising your rates during the length of the agreement with your client, make sure you honor the amount of the discount you have promised. If a client discovers what goes on behind the scenes, and realizes their “special” arrangement isn’t so special at all, you may do more harm than good.
Talk about not inspiring client loyalty!
As another friend, Legal Lean Sigma Institute Founder and JD, Catherine MacDonagh, Tweeted today at the P3 conference:
@tcorcoran: we are going to get it wrong before we get it right. It takes time to learn. #lmaP3
— Catherine MacDonagh (@CathMacDonagh) June 12, 2014
IT’S TIME TO GET SERIOUS
It’s time to get serious. Your clients are aware firms are willing to get creative about billing, so don’t be left out. Yes, like Tim Corcoran, or @tcorcoran, was quoted as saying above, you might get it wrong before you get it right.
The most important thing you can do to get it right is to involve your clients in the discussion. Be a bit vulnerable. Ask them about their budgets. Ask them what makes this work for them. Understand what went into handling these matters before. Start learning now before it’s too late.