Views From the Blawgosphere

[Editor's Note: Web logging is an increasingly popular medium of expression, but many blogs (or "blawgs" as legal blogs are called) offer musings that are not useful or even credible. By contrast, A&FP Board member Ed Poll, long on the forefront of communication technology, provides comments with actual substance at www.lawbizblog.com. Here's a sampler to introduce our readers to Ed's online thinking.]

Legal Fees ' Alternatives To Hourly Billing

More than 25 years ago, legal fees were based not only on the time spent, but also the nature of the service, the result achieved and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment. [See, blog for CA Bar link.]

That changed in the mid-1960s when clients began demanding detailed billing statements and lawyers used time records as a management tool to seek greater efficiencies. Today, most lawyers are paid by the hour ' almost as an hourly laborer. When lawyers are paid by the number of hours worked, self-interest can and often does affect a lawyer's judgment as to how much work to do for the client.

And, when investment in technology is required to maintain competency, the cost of operation increases. Yet, the increased technology creates greater efficiency, meaning that the time required (hours worked) to produce the same work product is reduced. This means that the revenue for the lawyer is reduced, unless he/she can get new and additional work assignments, or charge a higher fee per hour.

The ultimate result is that lawyers cannot take advantage of the efficiencies they achieve with a greater cost investment ' unless they go to an alternative method of billing.

Recently, I had the pleasure of interviewing several general and outside counsel involved in promoting greater use of alternative fees. There are many different forms this movement is taking, but one common element amongst all those talking about and using the new (or not so new) modality of billing is the essential element of frequent and open communication between the lawyer and the client. But then, good communication is required no matter what billing process is used. Perhaps the lawyer just must put more effort into the process.

For more on this subject, hear the comments of General Counsel and Outside Counsel on Law Practice Management Review Audio Magazine (http://store.lawbiz.com/audio.php#1).

Clients' Files: To Charge or not to Charge the Client?

Some lawyers charge their clients for “opening” a file on each matter; some lawyers charge their clients for photocopying the file before giving the file to the client when requested.

My experience says that these are legitimate charges to clients if provision is made for these charges in the retainer agreement. The fact that the client owns his own file does not mean that he cannot contract to allow copying it at the client's expense as part of the engagement agreement. Of course, the client's failure to actually pay the lawyer is not a valid reason for withholding the file from the client.

While this is correct, you may want to consider another factor. First, the marketplace. Are other attorneys in your similar position charging for file setups or duplicate file photocopying? If yes, then you're in the pack; if not, you stand out and may either anger a client or lose a prospect.

Second, even if the client stays with you, clients are angered by their attorneys for “nickel and diming.” Is this one of those charges that should merely be considered overhead and part of the cost of doing business? I suspect that many clients would believe so, especially with what they perceive to be very high hourly fees they pay to lawyers.

How you deal with this issue and other “small” expense items may set the tone for the entire attorney-client relationship and may impact the enthusiasm with which your current client refers other of his colleagues and acquaintances to you.

Unbundling Your Service to Lower Your Price

When you have to bend on the price you quote a client, be sure you first list the things you do for the client for that price. Then, when you lower your price in order to respond to the client's request (based on your competition), take some of those things off the table. Thus, you are not really “lowering the price.” You're adjusting the price to fit the appropriate level based on the service to be delivered.

What, you might ask, are the components of an hourly fee? Well, how about returned phone calls within 2 hours. That's now part of your regular hourly rate. Thus, if you lower your hourly rate in response to your client's request, take that response time off the table … tell the client that your response time will be 24, or even 48, hours. He'll get the point that he's not really lowered the price, but changed the value composition of what he's buying.

The analogy is buying a car at the base price vs. the same car with options at a higher price. You've merely unbundled (the current fad term) your services.

Need Cash Quickly?

Revenue from new clients paid within 60-90 days at a law firm is nearly impossible, as the average billing cycle once you do new work is 120 days.

If you really need revenue in 60-90 days, you should look to collecting existing accounts receivable as the first threshold, then focus on doing work for existing clients who pay their bills promptly. To be more effective, you must manage accounts receivable and focus attorneys' attention on doing work for “paying clients.”

Getting new work in 60-90 days is a very different question. In fact, it's several different questions, depending on what type of firm you run and what type of work you do. If you predominantly do M&A work, the idea of generating new work in 60-90 days is a bit like asking an athlete to go win an Olympic medal in an odd-numbered year. It's not always going to be up to the attorney.

That holds true for many types of legal work; it ain't always up to the lawyers. Not that I'm defending sloth in the marketing/sales arena. Just that for lots of corporate-side, business-heavy work, 60-90 days is a very short window. The ramp-up time from “Hello, my name is,” to “Great, we'll get started on that new piece of work,” can realistically be 18 months.

Work with shorter turn-around time, though, usually has a shorter ramp-up time, and can start billing more quickly. Though, as I said, probably not in 60-90 days.

Eat what you kill?

[Regarding a discussion at www.nylawyer.com/news/05/03/032105b.html, comparing the British and the American way of doing business in law firms.]

Yes, there are cultural differences. Perhaps the singular difference is the willingness to think as an “institution” (lockstep compensation) rather than as an “individual” (compensation based on origination). The former makes for longevity while the latter may make for rapid growth in the short term.

Perhaps it takes the entrepreneurial spirit to get going. Then the challenge is to change that into a managerial spirit, something that proves very difficult, too difficult for most. The really successful firms, only a few in number, find a way to do this.

To its critics, however, the firm's way of doing things is precisely the problem. The firm's insistence upon a system of lockstep compensation, in which partners are paid according to seniority, is widely regarded as the root of its partner retention difficulties in the United States. Most American law firms pay partners according to the amount of business they originate, the system known as “eat what you kill.”

Additionally, Clifford Chance's massive size and far-flung nature supposedly confront American lawyers with conflicts and red tape not present at even the biggest U.S. firms.

It is easy to ascribe such difficulties to fundamental cultural differences and many of the firm's detractors do. One ex-partner describes Clifford Chance's approach as “socialist” and ill-suited to the supposedly more entrepreneurial and individualistic United States.

“In Europe, clients really do hire the firm,” he says. “In America, they hire the individual lawyers.”

The partner points out that, unlike most U.S. firms, Clifford Chance does not even keep track of which individual partners brought in what business. “Americans like to keep score,” he says.

[Editor's Note: Web logging is an increasingly popular medium of expression, but many blogs (or "blawgs" as legal blogs are called) offer musings that are not useful or even credible. By contrast, A&FP Board member Ed Poll, long on the forefront of communication technology, provides comments with actual substance at www.lawbizblog.com. Here's a sampler to introduce our readers to Ed's online thinking.]

Legal Fees ' Alternatives To Hourly Billing

More than 25 years ago, legal fees were based not only on the time spent, but also the nature of the service, the result achieved and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment. [See, blog for CA Bar link.]

That changed in the mid-1960s when clients began demanding detailed billing statements and lawyers used time records as a management tool to seek greater efficiencies. Today, most lawyers are paid by the hour ' almost as an hourly laborer. When lawyers are paid by the number of hours worked, self-interest can and often does affect a lawyer's judgment as to how much work to do for the client.

And, when investment in technology is required to maintain competency, the cost of operation increases. Yet, the increased technology creates greater efficiency, meaning that the time required (hours worked) to produce the same work product is reduced. This means that the revenue for the lawyer is reduced, unless he/she can get new and additional work assignments, or charge a higher fee per hour.

The ultimate result is that lawyers cannot take advantage of the efficiencies they achieve with a greater cost investment ' unless they go to an alternative method of billing.

Recently, I had the pleasure of interviewing several general and outside counsel involved in promoting greater use of alternative fees. There are many different forms this movement is taking, but one common element amongst all those talking about and using the new (or not so new) modality of billing is the essential element of frequent and open communication between the lawyer and the client. But then, good communication is required no matter what billing process is used. Perhaps the lawyer just must put more effort into the process.

For more on this subject, hear the comments of General Counsel and Outside Counsel on Law Practice Management Review Audio Magazine (http://store.lawbiz.com/audio.php#1).

Clients' Files: To Charge or not to Charge the Client?

Some lawyers charge their clients for “opening” a file on each matter; some lawyers charge their clients for photocopying the file before giving the file to the client when requested.

My experience says that these are legitimate charges to clients if provision is made for these charges in the retainer agreement. The fact that the client owns his own file does not mean that he cannot contract to allow copying it at the client's expense as part of the engagement agreement. Of course, the client's failure to actually pay the lawyer is not a valid reason for withholding the file from the client.

While this is correct, you may want to consider another factor. First, the marketplace. Are other attorneys in your similar position charging for file setups or duplicate file photocopying? If yes, then you're in the pack; if not, you stand out and may either anger a client or lose a prospect.

Second, even if the client stays with you, clients are angered by their attorneys for “nickel and diming.” Is this one of those charges that should merely be considered overhead and part of the cost of doing business? I suspect that many clients would believe so, especially with what they perceive to be very high hourly fees they pay to lawyers.

How you deal with this issue and other “small” expense items may set the tone for the entire attorney-client relationship and may impact the enthusiasm with which your current client refers other of his colleagues and acquaintances to you.

Unbundling Your Service to Lower Your Price

When you have to bend on the price you quote a client, be sure you first list the things you do for the client for that price. Then, when you lower your price in order to respond to the client's request (based on your competition), take some of those things off the table. Thus, you are not really “lowering the price.” You're adjusting the price to fit the appropriate level based on the service to be delivered.

What, you might ask, are the components of an hourly fee? Well, how about returned phone calls within 2 hours. That's now part of your regular hourly rate. Thus, if you lower your hourly rate in response to your client's request, take that response time off the table … tell the client that your response time will be 24, or even 48, hours. He'll get the point that he's not really lowered the price, but changed the value composition of what he's buying.

The analogy is buying a car at the base price vs. the same car with options at a higher price. You've merely unbundled (the current fad term) your services.

Need Cash Quickly?

Revenue from new clients paid within 60-90 days at a law firm is nearly impossible, as the average billing cycle once you do new work is 120 days.

If you really need revenue in 60-90 days, you should look to collecting existing accounts receivable as the first threshold, then focus on doing work for existing clients who pay their bills promptly. To be more effective, you must manage accounts receivable and focus attorneys' attention on doing work for “paying clients.”

Getting new work in 60-90 days is a very different question. In fact, it's several different questions, depending on what type of firm you run and what type of work you do. If you predominantly do M&A work, the idea of generating new work in 60-90 days is a bit like asking an athlete to go win an Olympic medal in an odd-numbered year. It's not always going to be up to the attorney.

That holds true for many types of legal work; it ain't always up to the lawyers. Not that I'm defending sloth in the marketing/sales arena. Just that for lots of corporate-side, business-heavy work, 60-90 days is a very short window. The ramp-up time from “Hello, my name is,” to “Great, we'll get started on that new piece of work,” can realistically be 18 months.

Work with shorter turn-around time, though, usually has a shorter ramp-up time, and can start billing more quickly. Though, as I said, probably not in 60-90 days.

Eat what you kill?

[Regarding a discussion at www.nylawyer.com/news/05/03/032105b.html, comparing the British and the American way of doing business in law firms.]

Yes, there are cultural differences. Perhaps the singular difference is the willingness to think as an “institution” (lockstep compensation) rather than as an “individual” (compensation based on origination). The former makes for longevity while the latter may make for rapid growth in the short term.

Perhaps it takes the entrepreneurial spirit to get going. Then the challenge is to change that into a managerial spirit, something that proves very difficult, too difficult for most. The really successful firms, only a few in number, find a way to do this.

To its critics, however, the firm's way of doing things is precisely the problem. The firm's insistence upon a system of lockstep compensation, in which partners are paid according to seniority, is widely regarded as the root of its partner retention difficulties in the United States. Most American law firms pay partners according to the amount of business they originate, the system known as “eat what you kill.”

Additionally, Clifford Chance's massive size and far-flung nature supposedly confront American lawyers with conflicts and red tape not present at even the biggest U.S. firms.

It is easy to ascribe such difficulties to fundamental cultural differences and many of the firm's detractors do. One ex-partner describes Clifford Chance's approach as “socialist” and ill-suited to the supposedly more entrepreneurial and individualistic United States.

“In Europe, clients really do hire the firm,” he says. “In America, they hire the individual lawyers.”

The partner points out that, unlike most U.S. firms, Clifford Chance does not even keep track of which individual partners brought in what business. “Americans like to keep score,” he says.