Earlier this month, Larry Bodine did a piece on the Law Marketing Portal about alternative fees entitled, "Study Finds Weak Client Demand for Alternative Fees," in which he talked about the Center for Competitive Management (C4CM)'s 2010 Alternative Billing Benchmarking Study.*
According to Bodine, the study reveals that the recession is the driving force behind the move toward alternative fees. Many firms have begun implementing some form of alternative fees, but apparently clients aren't taking to them as anticipated. Bodine opines that when the economy turns around, interest in alternative fee arrangements will wane once again.
Reportedly, one of the reasons clients have not embraced alternative fees is that they are not well understood by either clients or lawyers. The C4CM report listed a number of obstacles to implementing alternative fees from the perspective of law firms and law departments, including lack of historical data to evaluate whether alternative fees would be profitable, lack of 'buy in' from key firm personnel, lack of skills to implement alternative fees and the ease of continuing with the existing system, which is configured for hourly billing and compensation based upon hours.
From the law department perspective, obstacles included a lack of incentives for in-house personnel to use alternative systems, difficulty in comparing costs among different firms if others are billing hourly, concern about whether firms billing under alternative arrangements would be as accountable as those billing hourly, and again, the difficulty of altering existing systems and measurements which were based on an hourly system.
What does this mean for lawyers and law firms? Should you abandon the idea of alternative billing? Not necessarily - especially for smaller firms and those working with clients who don't already have well-established measuring systems based upon hours or who aren't using multiple firms.
Implementing alternative pricing arrangements isn't easy - it takes time and effort on the part of the firm to understand the needs of the client, to develop a fee structure that makes sense for the firm and the client, and to adequately explain that system to the client based upon the client's needs. The client needs to understand why it helps them to agree to alternative fee arrangements. The firm needs to take the time to develop the skills to price effectively - as with anything new, lack of skill will be an obstacle until the skills are developed.
Where many lawyers fall short is that they fail to understand alternative fees themselves and/or a fail to adequately explain not only the alternative fees, but also the accountabililty and other advantages or incentives for clients to agree to these alternatives.
Clients who are used to hourly billing arrangements may be understandably suspicious when a firm attempts to introduce a new fee structure - especially if the fee structure was not one requested or demanded by the client. The client's natural reaction will be to second guess the firm and assume that a change in fee arrangements is one which will be benefiical to the firm, but not to the client.
Firms seeking to implement alternative fee arrangements must anticipate this natural suspicion. They need to develop a system which builds accountability into the fee arrangement and allows for open communication with the client. They need to be ready to explain why these arrangements will be beneficial to the client.
Just because clients aren't demanding alternative fees doesn't mean that they won't accept them, or even become champions for them. After all, nobody 'demanded' the iPad, but consumers are clamoring to get their hands on one. If lawyers can anticipate the needs and concerns of clients and address them in a meaningul way, acceptance of (and perhaps even demand for) alternative fee arrangements may increase.
Indeed, the C4CM study found that more than 90% of firms reported that they are maintaining or increasing profitability under alternative billing arrangements, and nearly 1/3 of firms participating in the survey noted increased requests from clients for alternative billing arrangements. If 1/3 of your clients were asking for alternative fee arrangements, would it be worth your while to develop the skills and systems to support them?
*hat tip to Lisa Solomon, legal researcher and writer extraordinaire, for pointing me to Bodine's article.
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