Alternative Fees as a Business Development Tool
by Allan Colman, the Closers Group
August 21, 2009
If law firms really made an effort to understand their clients’ businesses, they should not be surprised at the push for alternative fee arrangements. In fact, the few who were ahead of the curve five or more years ago, and have developed fee options with clients, tend to be in a stronger client retention position, even in today’s economy.
What would understanding business have told them? That their clients are constantly negotiating with their suppliers and their own customers for the best price and value. A well run business understands the cost of every component and how (and if) it can be modified while still delivering the highest quality product. The real question is why has it taken in-house counsel so long to activate the approaches used by their own business units?
“Blended rates” were an early answer to the alternative fee request. These were most applicable where law firms had high billing rates for senior partners and required multiple associates to be assigned to a project. It was little more than a method of keeping their high overhead billable.
One of the more successful ways high overhead firms have found to become more competitive is to develop client teams or industry teams which are given billing rate independence from the mothership. Let’s evaluate a few other attorney selling options that reflect not only the current business environment but the profound changes to occur in law firm structure.
First and foremost, you need to understand the client’s requirement for cost certainty. Law firms should also be applying this approach to their own management. If your clients’ suppliers have been working hard to maintain their business relationships, you need to do the same.
Start by a joint meeting with each of your clients to define your value to them. What do they anticipate their future business, products and services, competition, etc. to be? How can you refine your service to them to meet their coming changes?
Next, explore options wit them for alternative fee arrangements that will be mutually beneficial. If they will be requiring expense certainty, and you want to continue business development with them in the future, the onus is on you to find the best value-based alternatives.
Options could include:
- Set fees for measurable tasks
- Set fees for repetitive work with a bonus reward for cost saving or settling a matter under a target number.
- Consider representing corporations in their plaintiff actions on a contingency.
- In the same spirit of open trust, have the client clarify their budgets. Meet with the CEO/Risk Management Committee to increase your understanding – and theirs – of the options and value available.
- And do not discard the traditional hourly fees. These certainly offer options for categories of service that could have an upper-side limit placed on them.
The key ingredient to these alternative billing options is to address them directly with clients. Many other choices exist. But developing value based fees requires mutual trust. It also requires law firm management to recognize itself as a business and in order to be competitive in the future, modify its internal operations accordingly.
Our current economic environment, pressure for alternative fee options, and reorganizing the management of law firms are all coming together at the same time. As General George Patton stated:
“Follow me; lead me; or get out of the way.”
Allan Colman is an expert in helping law firms with legal marketing. CEO of the Closers Group, a business development consulting firm for lawyers, Allan Colman has helped to generate millions of dollars in new business for attorney clients.
