In today’s tough economic conditions, few lawyers at any size firm likely are considering an increase in their fees. This is of course a matter of economics. The seller of any service must understand costs, set profit targets and gauge market demand. The decision of what to charge ultimately is a matter of the seller’s choice. Lawyers have only the ethical obligation to keep fees “reasonable,” not necessarily low.
As the legal profession’s recession continues to deepen, too often the lawyer-client interaction on fees has become the client’s demand that the lawyer cut fees with a threat that the client will take his or her work elsewhere if there is no response. The fee cut requested could be across the board on the entire legal bill, or on hourly rates of specific lawyers, or for specific types of services – particularly those that the client deems to be high volume “commodity” work.
The Airline Approach
Law firms, of course, are not the only businesses facing price pressures. We’ve all become familiar with the extra fees that airlines now uniformly charge for everything from additional luggage to an in-flight meal. Providing these services was once “free” (that is, included in the base passenger fare), but the pressures of recession and rising fuel costs led the air carriers to feel that ancillary fees were more palatable to more customers than charging higher rates. And, surprisingly, most flyers have accepted the reasoning behind the charges. Rather than raise the fees for all, airlines are being selective. Just because it's an extra charge doesn't make it unreasonable, so long as customers see the reasoning and the value behind it.
With airlines as with law firms, the customer/client ultimately defines value. But in the law, where the specifics of services provided are less apparent than a checked bag or an in-flight meal, it’s the attorney who must educate the client about “value.” Otherwise clients may find it difficult to appreciate how value is provided and measured in a transactional matter or even in litigation other than by some win-lose metric. Merely charging an hourly rate, with nothing unique about, it tells your client that any other lawyer is just as good as you are.
Cost of Operation
Unfortunately, most lawyers don't know their costs of operation. Thus, the fee figure chosen often is a guess, not one based on a cost benefit analysis. No firm can adequately justify its fee without understanding its business (budget, collections, profit, loss), its billing structure, and how each attorney impacts firm profitability. A bill for legal services is only defensible if the cost structure behind it is known, and if the client accepts the value that the fee represents.
Service is still the one factor that clients want from lawyers more than anything else. No matter how you charge for it, can you offer something that your competitors don't or can't, or create something new that your clients need or want? That is the best way to avoid being forced by your clients to cut your fees. Consider these examples of how a firm can establish itself as a provider of value.
Unique Selling Position
A unique selling position offers something that sets you apart from others. If you handle estate planning, for example, you could add financial planning as a service, either as part of the fee package or for a designated added fee. Providing better-than-excellent service is all you may need to establish a unique position – for example, calls consistently returned within two hours, or final client documents nicely packaged in an attractive folder.
“Productizing” a practice is the process of offering a tangible product that leads to the intangible, value-added services you offer. For example, an estate planning lawyer might combat do-it-yourself web sites and software by establishing a password protected part of the firm web site that offers authoritative forms and research that the lawyer has prepared. For a flat fee a “client” could access this material and draw from it at will. However, if the client has a question or problem that the materials do not answer, the lawyer can provide personalized counsel, at a special rate reflecting the relationship established through the web site.
A blog (or blawg, for lawyers and law firms) can be a powerful value-added tool by combining personalized observation with facts and insights from the lawyer’s area of focus. Blogs should be created to speak to that ideal client who will provide the kind of work you want. Prepare blog postings to visualize and address your market, so that recipients will learn what your value to them can be and why they need you and your services . Writing should be done with the intention of carrying on a conversation with this ideal client. Be informal, conversational, and show that you have something valuable to offer. Once that is established, a blog might, for a subscription fee, combine the lawyer’s observations on breaking legal or regulatory issues with specialized content and research, with the option of asking specific questions outside of the access fee.
Computerized Knowledge Management (KM) systems systematically organize the firm’s entire work product, prepared for all of its clients, so that the collective research and advice of all lawyers are available to each lawyer. Best practices require every firm, whether one lawyer or one thousand, to create a standard classification system for each lawyer’s work. That includes memos, forms, briefs, emails (which often have vital information but frequently are forgotten or ignored), and opposition or third party documents that might have useful precedent forms or information for future use. Shared document management systems, such as iManage and Docs Open, and shared email files in Outlook, organize and keep precedent documents accessible. Being able to access documents this way provides value to clients who don’t have to pay for reinventing the wheel each time a form or background research is needed.
Firms that service major clients with teams (not just a single rainmaker) can identify and provide needed practice specialties that reflect a full range of client concerns. A billing attorney coordinates the service provision according to a strategic plan, and can give clients a complete and virtually seamless service package. The client receives “one-stop shopping” from a group of lawyers who are chosen to address specific needs, both in terms of practice specialties as well as billing rates. And because the team is the portal through which the firm’s counsel is provided, clients are spared the worry that their lawyer might leave or otherwise be unavailable.
Any of these alternatives can offer value, but a client can still insist that the bill is too high. In that instance, a lawyer can learn a lesson from the airlines by taking valued services off the table – “unbundling” them, in service industry parlance – in order to keep the same billing rate instead or to deliver a lower cost-price to the client. In effect, when the client wants a reduced price, the lawyer unbundles the services to accomplish that objective. In other words, for X dollars, you will do this and for "Y" dollars you will do that less "abc." While "abc" may not be important, the client gets the message that you're adjusting the price to fit the appropriate level based on the service to be delivered.
For example, if returned phone calls within 2 hours are part of your regular hourly rate, take that response time off the table if you lower your hourly rate in response to your client's request. Tell the client that your response time will be 24, or even 48, hours. The point will be clear: you’re not lowering your price, you’re changing the value composition of what the client is buying.
Whether you are bundling or unbundling services, it should be reflected on the bill that the client receives. Break any such charge into its basic elements, listing all the specific actions taken and describing the unique contributions by the firm (for example, through the use of KM systems, teams, blogs or the other value services discussed earlier) that supported the activity being billed. Such itemization does not try clients’ patience – it helps them understand just how much you did on their behalf. Use action verbs to describe your services. Clearly indicate the specifics of what was accomplished. This gives clients an appreciation of the effort required for success – and should make them less likely to insist that you cut your fees.