April 21, 2008

Solo/Small Firms Win Big Clients on Value - Not Price

Marcie Shunk of BTI Consulting wrote a powerful article for The Complete Lawyer called, "Welcome to the Age of the Smaller Firm" where she discusses how smaller firms are quickly becoming favorites on the short lists of law firms selected by the Fortune 1000. 

Surveys conducted over the past seven years show clearly that client service is king...not price.

Client service is one of the most powerful advantages smaller law firms are using to win over large clients. In an environment rampant with dissatisfaction (just 34.6% of corporate counsel recommend their primary law firm first) smaller firms are distinguishing themselves through superior communication, client focus and value.

Each year, BTI asks more than 250 corporate counsel to tell us which law firms stand out as the absolute best in 17 activities that are critical to the law firm-client relationship. Smaller law firms consistently outperform their super-sized peers in the four activities that truly differentiate a law firm in the eyes of clients:

  • Client focus
  • Understanding the client’s business
  • Providing value for the dollar
  • Commitment to help

Smaller law firms also stand out in the two problem-solving skills that are essential to establishing solid relationships: handling problems and dealing with unexpected changes.

Moreover, smaller law firms have raised their profile in several realms historically reserved for larger law firms including breadth of services and bringing together national resources (though they still lag their bigger competitors).

The client service advantages offered by many smaller law firms are winning the kudos—and dollars—of in-house counsel at top companies. Corporate counsel applaud the attention they get from smaller firms, as well as the feeling that their law firm is truly dedicated to helping them achieve their business goals.

Value: It's Not Low Rates

A component of client service, value earns independent distinction as an advantage for many smaller firms. Nearly half of the law firms corporate counsel recognize as best at providing value for the dollar are outside of the top 200. Yet it is not simply a matter of rates that places these firms at the top of the value list. Rather, corporate counsel laud smaller firms for their:

  • Practical approach
  • Superb communications and updates
  • Wise staffing decisions
  • Keen sense of risk and reward
  • Talent at articulating business stakes in client-friendly terms

All of these drive value in the eyes of corporate counsel.

This exceptional ability to deliver high value is one of the factors that helped vault smaller firms to the forefront of client short lists. It is also one that, in conjunction with client service, will help keep them there. Law firms that deliver value are, according to corporate counsel, a hot commodity. 30.1% of corporate counsel report that finding a law firm that delivers better value is one of their top unmet needs for 2008. To the extent that smaller law firms can continue to distinguish themselves in this arena, they will be well-positioned to maintain their current advantage over big name competition.

What Can We Learn From The Little Guys?

The advantages of smaller law firms are wide and varied, according to the feedback of hundreds of clients. Yet each of them finds their strength in a single place: Differentiation.

Whereas many of the large, national law firms have grown increasingly similar to one another in their breadth, scope and reputation, smaller law firms have managed to represent unique characteristics that help them stand out in the eyes of corporate counsel. We can all learn from their ascent into the short lists of the world’s largest companies.

Sometimes we hear the word 'differentiation' and we don't quite get what that means.  Differentiation is really listening to complaints and doing the opposite of what is causing the complaining.  If you hear often enough that clients are not satisfied with not getting phone calls returned, bad attitudes, not feeling important...then overcharging, you are not hearing 'my lawyers are overpriced.'  You are hearing 'I'm not getting the kind of service I was willing to pay for.'  So, you take this potential client who was willing to pay and market to them they will receive what they have complained they did not with their current lawyer.  This creates that elusive 'value' you also hear so much about.

Differentiation is also about presentation.  If you are technologically forward market this.  Market how it enhances the client's experience when working with your firm.  Showcase how it adds to the client experience because you understand and have listened to the client when they express their needs when hiring a lawyer. Market the nimbleness of your solo practice, your one-on-one connection with the client and attention to their goals. 

It's not about price.  It's about a client not getting what in her mind she paid for.  Yet lawyers bring their own prejudices about pricing, their own self-esteem issues believing they are not worth it, infuse their own morality to their pricing structure.  And thusly, they believe pricing is the number one factor in the client's selection process.

Pricing is part of the equation, but it is wrongly placed in first position for many solo and small firm practitioners.  If you listen to what your clients need and you are ready, willing and able to satisfy what they deem valuable in an attorney/client relationship you will be able to price yourself properly to make an enjoyable living while servicing the clients you choose.

Do you have an opinion about pricing?  Let's discuss.

Links of Interest:  In a Weakening Economy, Will BigLaw......

March 21, 2008

In a Weakening Economy Will Clients Trade Big Law for Innovative Small Firms?

I related to this article, "In a Weakening Economy, Americans Swap Steak for Chicken" because less discretionary income affects all purchases, including legal services.   It's called, "Trading Down."

Stung by the housing slump, tightening credit terms, and rising inflation, U.S. households are finding ways to cut back, putting a damper on the consumer spending that is the driving force behind the economy.

Retail sector analysts call it "trading down" when consumers seek out cheaper alternatives, and it is increasingly evident across chain stores and restaurants. Even gasoline consumption has slowed in recent weeks.

"With the burdens of the housing downturn broadening under the weight of tightening financial conditions, coupled with surging energy costs, 'trading down' and 'trading in' behavior should spread, especially as the labor market weakens,"

But unlike cattle farmers, who will have a hard time trying to become chicken farmers to save their business, solos should not trap themselves with one practice area, pricing structure or crushing overhead.

If you are married to one niche or pricing structure or have so much overhead you cannot afford to learn other practice areas or innovate with pricing models or packaging of your services then you are making a critical mistake.  (There are exceptions such as you are a 'lawyer's lawyer' meaning other lawyer's are your clients and they require your special area of expertise or you are already established as the go to person for a particular niche or you are in a life and death practice area where clients will sell their homes for your services.)

Others can and have argued with me on this point.  They say law is so complex you cannot be good at multiple areas.  I don't share their opinion.  I think you can be highly competent in two to three areas of the law even if ultimately want to only practice in one area of law.  But going into business for yourself and sustaining yourself requires you to be adaptable and talented and ready to do what you have to in order to sustain your practice.

Use Big Law as an example.  When a Big Law firm realizes the economy is changing they simple divest themselves of the associates working in the practice they've determined is no longer profitable.  They don't go out of business. Similarly, as a solo you need to divest yourself of unprofitable practice areas, not go out of business.  This means you need to be competent in more than one area or willing to learn quickly in order to not practice an area of law where clients are few or incapable of paying you.

Or, in the alternative, if you want to stay in your particular practice area you need to be prepared to change how you deliver services to work with clients who are now buying chicken instead of steak. (Yes, everybody and their brother talks about premium pricing, selling your value, etc.  It's valid.  As Big Law divests non-profitable practice areas there are still those steak buyers who now have nowhere to go. But if every lawyer is only going for the steak crowd, it becomes a buyer's market. Remember, there are alot of chicken and fish eaters out there as well as vegans who would make excellent clients.)

A new solo, (and many experienced solos) need to adapt to the economy, not expect the economy to adapt to them.  It's also not your gross sales which matter.  It's how much of each dollar you take home.  So, imagine finding a way to meet your client's needs through innovative delivery of your services by cutting overhead, providing pricing structures which work for the client and actually netting more of each dollar.  This is a business model you should be striving for...bad economy or good.

March 17, 2008

How To Set and Discuss Fees - Lesson #10

Now that Solo Practice University E-zine has more than 750 subscribers, I thought I would give you another sampling of the newsletter so you can decide if you would benefit from signing up to receive it or know of others who may.  This edition is called "How To Set and Discuss Fees and here is an excerpt."

Setting fees for your legal services is a two-fold proposition. It isn't just learning what the going rate for legal services is, developing a standard or creative pricing strategy and then positioning yourself based upon your experience. It is also confidently being able to convey to the client the value of your services.To be competitive in the legal services marketplace you must properly price those services based upon both your demographic area and the practice area. Your fees are basically pre-determined by what the market/clientele can comfortably sustain as well as the education you provide them as to the value of your services.

However, there are many schools of thought on pricing services which also includes value billing, a concept which is gaining traction in the legal world and taking on the billable hour as a viable alternative. Value billing is in essence creating a pricing strategy which reflects both the value you place on your services and the value the client places on your services as well as the outcome. Some claim there is more partnership and control passed on to the client through this type of fee structuring and some claim it is more freeing to the attorney because they are no longer tied to the clock. Regardless the debate, this is a more complex pricing structure (imagine a seasoned chef who's recipe is a 'pinch of this' a 'smidgeon of that.' The operative word is 'seasoned.') So, for purposes of this newsletter we will primarily discuss the traditional methods and models of setting fees.

If you ask a twenty-year family law veteran the going rate in in your state's major city and she replies "$450 per hour against a $20,000 retainer," will that fly for a two-year attorney in your state's smaller towns? Probably not.

The most efficient way to learn what the market can sustain is to talk to other attorneys about the going rate for services and to check statutory restrictions and limitations for services.

There are many reasons to charge market rates for your skills even if you are fresh out of law school.

First and foremost, today's client is savvy and has knowledge and expectation of what they should pay for quality legal representation. If you undercharge, you risk making the knowledgeable client suspicious of why you are cheaper. Are they getting "lesser" quality services? You also run the very real risk of alienating your brethren because you are dropping the overall price for services which ultimately impacts every other lawyer. Some call it "a race to the bottom" which is considered a losing proposition in the business world. In addition, alienating other lawyers is never a smart practice. Your professional peers play a very important role in the success of your solo practice on many levels.

You may feel that by charging less than the market can bear you are doing the client a favor but in the long run you are doing more harm than good all around by diminishing the value of your services. However, if you are creating a new and exciting pricing concept which works for you and your pocketbook and still provides value to your clients because you have packaged it properly, then by all means forge ahead.........

If you would like to read more of this newsletter (#10 in the line up) just sign up in the e-mail drop in the right hand column.

January 09, 2008

The "What is Value Billing" Discussion Continues....

In response to "The Billable Hour Bash-a-thon Continues" post (you may want to click through to refresh your memory and put the Q & A below in context) I received a thoughtful comment from Per Gynt, a 49 year old law student, which I wanted to publish.  I also asked my friend and value billing 'guru' Allison Shields of LegalEase Consulting to answer Per's question.  I thought maybe others could benefit from the question and answer.

Per Gynt:  What we are talking about is giving the customer more control over her money, not control over our companies. In the case of Cisco it is a case of the latter. I object to this kind of behavior the same way I object to "low ball" bidding for construction projects.

It's not good for the industry. Efficiency and reasonable pricing are certainly desirable, but companies that want to force me to reduce my price on a yearly basis aren't desirable customers because it disallows me the flexibility I may need to train new people or make decisions about the priorities of my own operation, not to mention the allowances for inflation and cost of living. It also suggests that my current price is not fair. What sense does that make? I want to be their lawyer, not their dog. Lastly, I have expenses that are best calculated in relation to time. Monthly, daily, hourly, etc. The expression of the cost of services as an hourly number is very appropriate. Now, I can see being new and inexperienced and not being willing to bill a client for learning how to do something, but I see nothing wrong with billing a fair price and providing a series of stopping points so that the client can make decisions about future expenditures. Is that not what we are talking about anyway? The "value billing" process seems manufactured and somehow removed from the actual value of the work, and therefore somehow less credible than a simple statement of minimum fees for simple procedures. Is value billing the equivalent of estimating the hours required and bidding the job accordingly? If so, why not just say so? I don't see how this would work in complex litigation, but tell me how I'm wrong. Please.

Am I wrong? I am seeing this from the perspective of a former construction professional, currently in law school.



Allison Shields responds:

Susan –

Thanks for giving me the heads-up and the opportunity to chime in and comment on this post. While I agree that clients will be a big driving force in changing the legal profession and getting more lawyers away from hourly billing, I don’t necessarily agree with Lerer’s view of the future. And while I haven’t looked into Cisco’s system, the way Lerer describes it in her post, I’d have to agree with the commenter, “P,” that forcing a firm to cut their total charge by a specific percentage each year without regard to what work is performed and how it’s performed is too simplistic an approach that’s bad for both lawyers and clients.

But lawyers and law firms have to keep in mind that the needs of clients are ultimately what control their business; the key is to choose your clients carefully. If a particular client is requesting that the firm perform work at a fee that is economically not viable for the firm, the firm has two choices – target other clients or find a way to make the work economically viable for the firm. As P notes, a client that wants to force a firm to reduce fees on a yearly basis may not be a desirable client for a particular firm (or lawyer). But remember that clients aren’t the ones responsible for ensuring that lawyers and law firms can train people, prioritize their business needs and ensure that the firm is covering inflation, etc. Those are business decisions that need to be made by the law firm. One of those decisions, as mentioned above, is the clients you choose to work with. Another one is how you structure your fees.

Many lawyers like P claim that they have ‘expenses that are best calculated in relation to time.’ Lawyers today are accustomed to making calculations in terms of time, but that doesn’t necessarily mean that’s the best method of making those calculations. What expenses are actually best calculated in terms of time? Even if the lawyer thinks that the best method of calculating their expenses is time, that doesn’t necessarily mean that’s the best way of calculating fees. The ‘cost of services’ is something a law firm needs to take into account when pricing their services, but it isn’t the only factor – the value of those services to the client is the real measure of the appropriateness of the fee.

The issue of ‘value billing’ is getting a lot of attention lately, but the definition of ‘value billing’ isn’t fixed, which causes some confusion among professionals. Value billing doesn’t mean that the client has total control over what the lawyer charges. But no matter how you structure your fees, the client must value the work performed enough to pay the fee charged.

P’s comment says, “I see nothing wrong with billing a fair price and providing a series of stopping points so that the client can make decisions about future expenditures.” That’s really the answer to P’s later question about how value billing would work in a complex litigation context. The big question is how you determine what a ‘fair price’ is. And complex litigation or not, time isn’t the sole factor that determines whether a fee is appropriate or fair.

There isn’t only one way to value bill, because every law firm is different, every client is different, every case is different, and different practice areas require different legal skills, etc. Sometimes it’s appropriate to provide a ‘flat fee’ up front for ‘simple procedures’ (as P calls them) or for predictable work. Other times, what P suggests about a series of stopping points is appropriate. By quoting a fixed fee for specific work outlined in an agreement, advising the clients of variables that would change that fee, and providing ‘stopping points’ at which the client determines whether to move forward and what additional services might be required or appropriate based on the client’s desired outcome and values (as well as the fee), alternative, value-based billing can even work in a litigation context.

Lawyers need to start thinking about the value that they provide to their clients in terms of the services that they provide, rather than the time it takes to provide those services. A lawyer’s most valuable assets are the lawyer’s intellectual capital - skill, knowledge, expertise, ability to argue, to see the issues, to creatively represent their clients’ position- and their ability to provide their client with the kind of experience the client is looking for in their legal representation. Time is NOT the lawyer’s most valuable asset. Lawyers do themselves and their clients a disservice by continuing to assert that time (a limited asset, the same amount of which is available to everyone) is what the lawyer is ‘selling’ to a client. Value billing is NOT billing based on estimated hours – it is billing based on the value provided by the lawyer to the client. Time is (or may be) a factor that the lawyer considers when calculating the lawyer’s cost to provide the service, but it shouldn’t be the sole basis for the lawyer’s fee.

The bottom line is that more and more clients are getting frustrated with hourly billing and are calling for alternatives. Lawyers that can learn to structure their fees in a different way will be more attractive to those clients – assuming that those are the clients the lawyer wants to work with. And experience has shown that that lawyers who are no longer tied to the billable hour find the law firm culture, legal work, enjoyment of the practice, employee and client relationships and profits all improve.

Allison C. Shields, Esq.
Legal Ease Consulting, Inc.

January 03, 2008

The Billable Hour Bash-a-thon Continues Courtesy of Slate

This article was forwarded to me by a reader known as Blueb73.  Author Lisa Lerer of Slate Magazine writes a compelling piece called How to Kill the Law Firm Billable Hour in which she states the following:

The criticisms lobbed by academics, associates, and bloggers have had a negligible impact. Making such a significant change takes a more powerful force in law firm life: the client. And now, finally, the companies that pay millions in hourly rates are striking back, forcing their law firms to cut some tough, nonhourly fee deals. If anyone can tame the billable beast, it's the clients who feed it.

She further describes what she believes to be the future of law firm culture:

If this is the future of the legal world, then the business will eventually spilt into three fairly autonomous markets. The top end of the spectrum will remain largely unchanged. Companies will still pay hourly rates to hire white-shoe law firms for specialized, bet-your-company kinds of work. On the opposite end, however, clients will stop taking their rote legal work to law firms altogether. Companies already outsource relatively simple matters like document review to consulting services. And as technology improves, more programs will let companies handle their own contracts online.

In the murky middle between one-of-a-kind advice and dime-a-dozen contracts, the push for alternative arrangements will prevail. Cisco, for example, already pays a fixed fee to law firms for filing patents at the Patent and Trademark Office. The firm's total charge must decrease by at least 5 percent each year, as a firm becomes more efficient; if not, it is replaced with a smaller one willing to take the work.

Solos, take note.  Where will you fit into this structure and how will you capitalize on the opportunity presenting itself.

Links of Interest:

The Billable Hour "Cockroach" is Being Extinguished

The Cockroach of the Legal Profession - The Billable Hour

October 08, 2007

The Billable Hour "Cockroach" is Being Exterminated....One Law Firm At a Time

(UPDATE:  10/9/07 Meet Jay Shepherd, who authors the Gruntled Employee and read his post on how since he abandoned the billable hour his revenues have doubled!)

A Boston based law firm has taken the unusual step of banning the billable hour...if their clients want billable hours, they tell them to find another firm.

And this is by their choice, not because their clients are pressuring them into it.  The lawyers don't want to sell time for services anymore, don't want the restraints of the clock. 

Shepherd, a five-lawyer firm that specializes in employment law, charges its clients a flat annual fee or flat price per task. Clients can call the firm as often as they want to discuss legal issues, although some services, such as training and litigation, cost extra. The new approach helps clients determine legal costs in advance and often prevents legal problems from escalating because clients are no longer reluctant to seek advice out of fear of incurring a hefty bill, said Jay Shepherd, the firm's founder.

"Hourly billing is wrong and it's anti-client," Shepherd said. "There's a disincentive to be efficient since you get paid more if you take longer to finish a matter - even though the client wants it to be finished as fast and efficiently as possible."

The American Bar Association concluded in a 2002 report that hourly billing is at the root of much that is wrong with legal practice: brutal hours, lack of collegiality (since time spent chatting with colleagues is time not spent billing), fraudulent billing, lawyers who intentionally stretch the time it should take to finish a matter, unpredictable costs for clients, little time for friends and family, little time for community service, and a system that rewards lawyers for quantity over quality.

I salute them.  While they are not the first, they are one of the many saying, 'no more.'  And as more and more law firms, big and small, say 'adios,' eventually the tide will shift, the consumer will become more educated as to the benefits of not paying a lawyer by the hour and client/attorney relationships will improve, lawyer career satisfaction will improve and maybe, just maybe, the image of the profession will improve in a noticeable way.

Because quite frankly, I'm tired of seeing our profession being reduced to almost tabloid-esque style headlines proclaiming the birth of the $1,000.00 per hour rates, associates committing suicide unable to meet their billables, people leaving the profession in droves as they are asked to sacrifice their entire personal lives to the almighty clock.  It's a profession-created cockroach and as such it can be exterminated, one lawyer, one law firm, one educated client at a time.

And to new solos, try to not get started on this path.  Learn alternative fee arrangements from the beginning.  Seek out those knowledgeable on value based billing.  Start your practice with the right habits.  If you are in an area of law that requires hourly rates, time to put pressure on the courts to see the light.  It's hard work  But nothing worth having is ever easy.

Links to other posts of interest:

The Cockroach of the Legal Profession - 8/13/07

August 27, 2007

The Economics of Solo/Small Firm Lawyering - A Survey

Reader of Build A Solo Practice, Attorney Emily Finger of Minnesota e-mailed me this very interesting information regarding the economics of solo/small firm lawyering.  Over 300 solo/small firm lawyers participated in the 2007 Solo & Small Firm Economic Survey conducted by Minnesota Lawyers Mutual for the state of Minnesota. (Full 24 page survey here.)

You may say, "I'm in New York (or California or Kansas) so how does this relate to me?  It's fair to respond, " it does" when you read some of the more interesting revelations:

Of the 340 attorneys who responded, they either worked full or part-time but exclusively in private practice. This can have a tremendous impact on the statistics. The majority of respondents, 51.4%, described themselves as a solo practitioner, with another 39.8% indicating they work in a firm of 2 - 5 attorneys.  This means of all respondents, 91.2% are in firms of less than 5 attorneys.  Whether this is indicative only of those who chose to respond or a statistical representation of the division of lawyers in private practice in Minnesota is unknown.  But, regardless, the number is impressive.

Almost half of those who responded practice in what is traditionally known as general practice areas, family, estate planning, probate and real estate (total 42.6%).

With hourly billing between $150-199 per hour solo/small firms who responded are grossing up to $150,000 per year. 28.1% reported under $50,000; 30.3% reported $50,000 - $100,000; 23.3% reported they earned between $100,000 - $150,000.  There is a caveat here, though.  17.8% of lawyers reported working less than 32 hours per week.  (This is interesting because the majority are part-time by choice due to family considerations and/or other business interests.) It would be a reasonable assumption to believe those who considered themselves part time are the majority of the 28.1% earning under $50,000 although this is not necessarily true.

Among the solos who responded, more than half claim their overhead expense goes to paying for non-lawyer personel (28.5%), rent, phone and utilities (28.2%).  Those who had gross sales between $100,000 and $199,000 said their total expenditures, excluding wages and salaries was $25,000.  It makes a strong argument for outsourcing to either technology or per diem remote or virtual assistance in order to earn more money working smarter rather than harder.

I find this study enlightening because it shows gross sales with an hourly billing range.  If you are in a state which commands higher hourly billing rates your gross sales will be higher.  If you bill a significant number of hours per week your gross sales will be higher.  If you are solo and high tech, commanding higher hourly rates and/or value billing and can reduce your non-lawyer wages, technology knowing no demographic or very little variation state-to-state, your income will be significantly higher without working harder, just smarter.

As with any study there is margin for error but it does cast an interesting light on the earnings of the solo/small firm lawyer, something you can also read about here.  If you wish to see a copy of the summary in PDF, please send me an e-mail. ( I was unable to provide a link to the summary PDF on this post.)

Also, on Thursday we will be featuring Attoroney Emily Finger on "Going Solo; Confessions and Inspirations." 

August 13, 2007

The Cockroach of the Legal Profession - The Billable Hour

(UPDATE:  Gerry Riskin at Amazing Firms Amazing Practices tells us one 190 lawyer firm has tossed billable hour requirements for first year associates or read the original Law.com articleDavid Giacalone of f/k/a brings us more valuable resources and fine opinion about the Billable Hour.

(UPDATE: 8/17/07 - Lisa Solomon of The Billable Hour has a terrific resources page on the many articles written pertaining to value billing and the billable hour - make sure you scroll down the page for an impressive list.)

(UPDATE:  8/16/07 Luke Gilman culls excellent articles and commentary to further add to the conversation.)

(UPDATE:  Stephanie West Allen of Idealawg adds an interesting article to the conversation.)

It's been said in a nuclear explosion the only life forms that would survive are the cockroach and Cher.  Well, apparently the billable hour has been described as the "cockroach of the legal profession" in this archived Law.com piece as it explains the history of the billable hour and why it, too, will probably survive a nuclear explosion.

For about 50 years now the billable hour has been the dominant feature of the legal profession. And for just as long lawyers have been trying to kill it. A group of litigators who usually couldn't agree that the sky was blue without several footnotes qualifying the shade will gladly sing in harmony about the evils of the billable hour and its partner in crime, the daily time sheet. Yet generations of lawyers have accounted for their work lives in six-minute increments. Both reviled and ubiquitous, the billable hour is the cockroach of the legal world.

Back in a more genteel age......when the practice was more of a profession and less of a business, the cost of legal services was determined not by the amount of time a lawyer spent on a matter but on the value he delivered to the client. That model broke down and was replaced by a time-based metric....

So, here is the history lesson:

."... if the billable hour is such an inefficient system, then how did it come about in the first place? The blame can be traced, as you might suspect, to Harvard University. In 1914 Reginald Heber Smith, a recent Harvard Law School graduate, took over the Boston Legal Aid Society and enlisted the Harvard Business School to help him devise a detailed system to track and manage the organization's finances. One of his innovations was to have the lawyers begin keeping detailed records of their time on different cases. Five years later, Smith, now a well-known figure for his seminal book on legal aid, "Justice and the Poor," joined the new firm of Hale and Dorr as managing partner. He brought his detailed accounting system with him, including a further refinement: the daily time sheet. Recalling his innovation many decades later, Smith wrote that while he thought "nothing could be simpler" than a form on which you recorded the client, the name of the matter and the time you spent working on it, the lawyers at Hale and Dorr hated his new invention. Indeed, Smith wrote, it "seemed to them little better than a slave system."

In devising the time sheet, Smith was heavily influenced by the theory of "scientific management" promoted by Frederick Winslow Taylor, a businessman and researcher who taught at the Tuck School of Business at Dartmouth. Taylor's theory of industrial management stressed the importance of monitoring the time it took workers to complete certain tasks. He even suggested that supervisors keep a stopwatch handy to take accurate measurements of their observations. Taylor's theories of "time study," developed fully in his 1911 book "The Principles of Scientific Management," were hugely influential in nascent business academia. But they were also controversial. In 1912 Taylor was called to testify about his unorthodox ideas before a congressional committee, and subsequently a law was passed banning the use of stopwatches by civil servants. Taylor's critics said scientific management, with its strict emphasis on time, reduced human beings to little more than machines.

None of that deterred Reginald Heber Smith in his efforts to promote the time sheet. In 1940 he published a short book on law firm management that gave full voice to his theories. "The statement that a law office needs an accurate cost accounting system seems revolutionary," Smith wrote, "but if every business concern has to know its costs, why should the law office be immune?" Smith had little patience with those who argued that the law was a profession as opposed to a business. Moreover, Smith had no doubt what value lay at the heart of the practice:
"The service the lawyer renders is his professional knowledge and skill," Smith wrote, "but the commodity he sells is time."

To protect that valuable commodity, Smith gave specific instructions on how the time sheet should be produced, what each line and column should contain, what abbreviations of services should be used and what the basic measurement units should be. "We use the hour and the tenth of an hour because it facilitates not only addition but other calculations. ... For convenience in figuring nothing surpasses the decimal system."

Smith's Law Office Organization was enormously influential, eventually going through 11 printings, but it wasn't solely responsible for the triumph of the billable hour. By the 1940s, bar associations in most states had in place flat-fee schedules for various legal services. Indeed, it was often an ethics violation to charge less than the proscribed amount. But the revision to the federal rules of civil procedure in 1938 fundamentally altered the landscape for law firms. The dramatic expansion of pretrial discovery made it difficult for firms to estimate the amount of work that might go into a case. In tandem, the rise of the trial lawyer and mass tort cases in the 1960s and early 1970s rendered much of the old flat-fee system quaint and obsolete. Finally, in 1975 the U.S. Supreme Court delivered the coup de grâce, ruling that statewide fixed-fee schedules violated antitrust law. The way was cleared for the bastard child of scientific management to dominate the profession.

There are many talented lawyers who care passionately about their clients and breaking free from the billable hour.  They, too, don't want to sell time but value to the client as this can be emminently more profitable for the enterprising solo when technology is fully utilized and remain equally beneficial to the client. It would appear those who have the loudest voices in this century old argument want to go back to our professional roots.

However, the billable hour model seems so firmly entrenched in the profession to remove it completely today could be likened to ripping the spine out of a body and expecting it to stay erect. 

"The question remains then: If the billable hour is so unpopular, why hasn't it been replaced? For starters, it's a huge moneymaker for firms. To a large extent, reliance upon the billable hour is responsible for the pyramid structure of the modern law firm. With legions of associates toiling away on behalf of a narrow band of partners, the modern megafirm generates huge revenue. Take away the billable hour, however, and the foundation of the pyramid collapses. If the basic commodity sold becomes knowledge, not time, then the modern megafirm suddenly begins to look like an obsolete smokestack industry." 

But it is not only the profession which needs to relinquish the notion of the billable hour, clients have been so conditioned to think in terms of billable hours they could actually be the harder sell when it comes to understanding and then accepting alternative fee arrangements.  Clients are so mistrusting of attorneys' fees already and it is the root cause of that unspoken negative tension which exists in all attorney/client relationships.

One reason today's voices may actually be heard and have an impact is the internet.  The power of the internet to amplify voices of dissatisfaction so others must respond cannot be denied.  The power of the internet to educate the end user, the client, cannot be denied. As the cacophony gets louder and louder there may acutally be a chance to severely weaken the grasp of the billable hour on the profession. Probably not in our professional lifetimes....but one can only hope.  Solos, however, can be Picassos. They can carefully craft alternative fee structures today if they are meticulous in the way they draft their retainer agreements, ensuring they will stand up to challenge from client and/or court.

July 22, 2007

Failure to Create a Retainer Agreement which Covers All the Bases Can Cost You Big!

Retainer agreements, in my opinion, are for the protection of the attorney, period.  It is the only document which protects the attorney and her hard work.  It is the mother of all CYA documents in a solo's arsenal used to protect their work, their time, their profits, their livelihood, and their sanity.  Yet it is the single document I find attorneys take fairly lightly, copying other's agreements, not bothering to research what is required, assuming if someone who has been practicing longer uses it, well, it must be good.  This is a huge mistake.

A retainer agreement is the only contract you have with the client and must cover all the bases and any foreseeable eventuality.

One of the requirements of my class is to create a retainer agreement from scratch for their chosen practice area.  And I tell my students, "if you are currently working at a firm, no matter how prestigious, do not give me their retainer agreement."

So, if one of my students was working at The O'Quinn Law Firm and handed me their retainer agreement for a class action, say, like the one used in the recent breast implantation victory which netted the Texas firm $263.4 million in fees, I would have to say, "this retainer agreement breaches your fiduciary duty to your client."  And this breach cost The O'Quinn Law firm over $25 million of those fees.

Some may take issue when I say the retainer or engagement letter is primarily for the attorney.  But it is the truth.  And if you don't view the contract between yourself and your client this way, you need to.

Start reviewing your retainer agreement and see if it really protects your interests.  Have you updated it to include communications via e-mail?  Does it detail your right to withdraw?  Does it have an arbitration clause?  How do you handle a dispute in fees?  Does it lay out your responsibilities to bill at certain time intervals and the client's responsibilities for payment.  Is there a client waiver of right to dispute after a certain time period has lapsed?  Does it have a Scope of Representation which clearly states what is covered and also specifically states what is not covered?

These are just a very few of the inclusions.  Time to do a reexamination of your retainer agreement.  This is not a static document and should be taken out at least once a year,dusted off, reviewed and updated to reflect new laws, rules and your current situation.

June 18, 2007

Should You Charge For An Initial Consultation?

This is a very common question a new lawyer asks.  The thought process goes something like this:

1.  I want to get the (any) client in the door.

2.  Everyone else gives a free initial consultation, I think?.

3.  I'm too afraid to charge for a consultation because the potential client won't come in.

4.  But my time is money.

5.  So, how much should I charge?

6.  No, I shouldn't charge for the consultation.

The dilemma is obvious. You want to get the potential client in the door but you also don't want to give your time away.

In my opinion, it all turns on where you are in the growth curve of your overall professional life and legal career.  Notice, I said, "legal career" not growth curve of your solo practice.

These are my opinions based upon my experience and others but they present a smorgasbord of options from which you can choose. Or please debate or add to the list.

As a new solo your goal is to get as many potential clients in the door as possible so you can practice your client interviewing skills as well as actually having the opportunity to have clients hire you.  Initially, you will not generally have many clients (unless you are a seasoned lawyer with hip-pocket business and are going solo). The real value and benefit in this approach when you first open your doors is not so much the exchange of dollars for time, but the opportunity to get clients into your office. Period.

You want as many chances as possible to practice these interviewing skills, polish your dialogue and get comfortable with discussing fees and collecting fees/retainers.  You also want to develop your radar for the unwanted clients, those clients who will drain your time, resources and your very soul.  You are also giving yourself an opportunity to canvas clients to find out how they heard about you, what they have heard about you and more importantly, are the clients who are coming to you the type of clients you want to service. This is the marketing aspect of the interviewing process which you need to perfect.

As a practicing solo developing your areas of concentration, depending upon the areas of law you are practicing, you may want to charge a consultation fee because;

1) as your knowledge grows, (or in your previous life you have twenty years of other professional experience) your 30 or 60 minutes with a client can be worth more than an inexperienced lawyer's three hours.  You impart more experiential value.

2) Sometimes potential clients are consulting with you to eliminate you as the lawyer for the opposing party because your reputation precedes you.  If you get eliminated without collecting money for your time it can be costly not to bill for the consultation. (For example, if you only represent men in the dissolution process, would you ever want to meet with a woman if they are just trying to conflict you out?  Why take $250 and be bumped out of a $15,000 retainer?) 

If you are now at a stage in your life where you are skilled in screening clients on the telephone and you have other options with your time, including billing out on another matter or a day at the beach with your child, you are at the stage where you can establish a real calculable 'value' for your time and should consider charging for that initial consultation.  

If you are at this point, you should consider using a different marketing tool.  Charge for your time with a catch.  If you are hired, the fee collected for the consultation is used against the intial retainer or flat fee.  Some will charge one hour at their normal hourly rate regardless of the actual length of the consultation so the client doesn't feel rushed.  Others will charge hour for hour.  Again, it is a personal choice. Potential clients now feel more invested in you with this leveraging tactic against the retainer.

Experienced solos with major reputations in their practice areas (except in contingency areas) generally will charge a fixed consultation fee for the consultation.  The consultation fee is never leveraged against the retainer.  These lawyers know the value of their knowledge and time and, most often, so does the client.  These lawyers are not worried that another lawyer is doing free consultations.

Fees for initial consultations, in my opinion, turn on experience, marketing strategy, and the norm for the practice area.  If you have a unique take on this common quandry, please share .