Lawyer or Laborer? Value Billing Helps Lawyers Convey the Worth, Not Just the Cost, of Their Services

Until well into the post-World War II era, legal fees were based not only on the time spent, but also on the nature of the service, the result achieved, and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment. That changed in the mid-1960s when clients began demanding detailed billing statements, and lawyers used time records as a tool to provide them. Today, most lawyers are paid by the hour ' and both lawyers and clients take little satisfaction in the system.

For lawyers, hourly billing is a source of frustration and discontent. Often, when I coach attorneys who are dissatisfied in their practice, it's soon apparent that their real dissatisfaction is with measuring their days in six- or 10-minute increments and losing focus on the essence of their skills. The hourly billing concept makes them equivalent to a day laborer, sending out bills that are features lists: This is what I did, this is the time I worked, and this is what you owe me. That approach also breeds dissatisfaction among clients, because it doesn't address the benefits of what a lawyer does. All clients know is that the longer lawyers take, the more they make ' and they believe this dynamic is at odds with the client's best interest.

The simple fact is that lawyers don't really sell time; we sell a service. Our goal should be providing value: advice that means solutions to our clients. Hourly billing doesn't address value and benefits ' the worth, as opposed to the cost, of the service. The best model for our profession, and the best path to personal satisfaction in each lawyer's practice, is to get paid for the real value and expertise brought to the client. And that requires a new billing dynamic.

How to Show Value

Emphasizing the value that the client received from the services provided allows a firm to generate billing statements that will be more meaningful to the client, and will go beyond a mere laundry list of tasks performed. Too many lawyers and law firms make the mistake of brevity when billing. They should break charges into basic elements, list all the specific actions taken, and describe the unique contributions by the firm that support 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.

Ultimately, the client, not the attorney, defines value. But, 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. Providing solutions gets attention ' and gets rewarded, if detailed and documented properly. Merely charging an hourly rate, with nothing unique about it, tells your client that you are no different from any other lawyer. Identifying and providing unique value will increase your revenues, will allow you to provide service to clients who truly appreciate you and the value you provide, and will result in your receiving the kind of work you want.

How to Provide Value

'Good service,' 'value,' and 'solutions' shouldn't be vague buzzwords. All lawyers, solo practitioners, and members of megafirms alike, can structure what they do to consistently encourage a high client perception of value. Basic elements of that include:

• Establish a return phone call policy. Return, or have an assistant return, all clients' phone calls within two to four hours.
• Know your clients' concerns and understand their business.
• Create a client-friendly office environment. Have informative literature in the waiting room, and make sure it's available in languages that reflect your clients' primary languages.
• Prepare your clients for interactive events such as negotiation sessions, depositions, and testimony so they know what to expect and are prepared for what might happen. Incorporate a wide range of possibilities so that clients are not shocked if the outcome, over which you have no control, is different from what they had hoped for.
• Never make promises you can't keep, and always keep promises you make.
• Regularly ask clients for feedback about whether they are pleased with your services. Focus on satisfaction with the service provided, rather than on the results achieved.

Another way to define and provide value is to establish what marketers call a unique selling proposition. Be different. Offer something that your competitors don't or can't. Create something new that your clients need or want. If you can't establish what makes you truly unique, you're really nothing more than a commodity to your clients. A unique selling proposition is a key strategy in establishing higher rates. It can be approached in a variety of ways. 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. Sometimes, showing that you provide better-than-excellent service is all you need to establish a unique proposition ' for example, final client documents nicely packaged in an attractive folder. You can also show that your firm is cutting edge. An effective Knowledge Management program is a good example. Electronic Knowledge Management, through a shared database, makes information available faster and more completely to clients and others in the firm. The result is greater efficiency, better communication, and faster turnaround, which can often help justify a higher effective hourly rate.

How to Raise Fees

The positive side of the pricing equation is that demonstrating your value enables you to make a convincing case about raising your fees. This is always a tricky thing to do, and the general ability to do it hinges on two factors, one qualitative and one quantitative. Qualitative considerations for a fee generally involve ethical questions of professional conduct. Is the amount of the fee reasonable and in proportion to the value of the services performed? Does the lawyer have the skill and experience to justify the fee? Does the client understand the amount and nature of the fee and consent to it? Quantitative factors typically come down to marketing considerations. Your fee must be competitive with others in your geographic and practice areas. You must know the current market conditions and the competitive pressures on legal fees. Each local market has its own characteristics. National trends do not control your situation.

Assuming you pass these two tests, the question becomes how best to make the case for raising your fees. The lawyer who thinks in terms of value can make these tangible arguments:

• You do more. Sometimes, showing that you provide better-than-excellent service is all you need to justify a fee increase ' for example, faster turnaround from engagement to completion.
• You achieve results. If you raise fees going forward after clients are happy due to your winning a motion or negotiating a favorable deal for them, the fee increase is more likely to be accepted.
• You are reasonable. The smaller the fee increase, the easier it is for clients to accept it. Adding 3% to 5% to an hourly fee won't turn off many clients.
• You handle a big-ticket or break-the-company case. In these instances, clients want whomever they perceive to be the best, and price typically is not a factor.
• You are cutting edge, using such benefits as knowledge management or client service teams.

How to Get Client Acceptance

Most clients recognize the importance of, and are willing to pay a fair fee for, value. What they do not want is to pay too much, to pay for inefficiencies, duplications, or unnecessary services. Commitment to the use of value billing requires commitment to three basic premises for success:

1) Communication is essential. Surveys uniformly show that clients are unhappier with surprises and unexplained costs in their bills than they are with high bills themselves. An upfront general statement about fees and alternatives, estimates and budgets, flow charts to explain who in the firm does what, all are crucial communication tools. Tailor this communication, and the fees themselves, to individual client perceptions of value.

2) Clients are not particularly knowledgeable about billing, particularly in their understanding of what equitable arrangements may exist. Law firms must seize the initiative by working with clients to develop specific pricing alternatives based on each client's preferences.

3) There is no universal, best-billing alternative. Client preferences and each firm's operations differ, and each project or case has factors that could accommodate various billing options. Those preferences and factors should drive the alternative billing considerations.

It is essential for every lawyer to understand the interaction between what law firms charge clients for their services, how effectively they collect their fees from clients, and how lawyers themselves are compensated for the work they bill. Ensuring any law firm's business success requires taking the kind of integrated approach to the entire issue of billing, collection, and compensation that I've recently covered in a new special report, Fees and Compensation for Law Firms: Value & Growth Dynamics. This report takes a down-to-earth look at billing methods that are easy to understand and make the bill more meaningful to the client. The entire topic is well worth any lawyer's time because cash cannot be realized until clients understand the benefits they have received from the lawyer's services ' and agree to pay the bill. The key is to understand and convey value to the client, expressed in clear and understandable terms.

Edward Poll helps attorneys and law firms increase their profitability by consulting with them on issues of internal operations, business development, and financial matters. He has 25 years experience as a practicing attorney and has also served as CEO and COO for several manufacturing businesses. In 1990, he founded LawBiz' Management Company and is now focused on coaching, speaking, and training law firms. Poll just released his newest book Law Firm Fees & Compensation: Value & Growth Dynamics (LawBiz^' Management, Co., 2008). He is also a columnist for the Association of Legal Administrators and contributes the 'LawBiz' Coach's Corner' to Lawyers Weekly.

Until well into the post-World War II era, legal fees were based not only on the time spent, but also on the nature of the service, the result achieved, and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment. That changed in the mid-1960s when clients began demanding detailed billing statements, and lawyers used time records as a tool to provide them. Today, most lawyers are paid by the hour ' and both lawyers and clients take little satisfaction in the system.

For lawyers, hourly billing is a source of frustration and discontent. Often, when I coach attorneys who are dissatisfied in their practice, it's soon apparent that their real dissatisfaction is with measuring their days in six- or 10-minute increments and losing focus on the essence of their skills. The hourly billing concept makes them equivalent to a day laborer, sending out bills that are features lists: This is what I did, this is the time I worked, and this is what you owe me. That approach also breeds dissatisfaction among clients, because it doesn't address the benefits of what a lawyer does. All clients know is that the longer lawyers take, the more they make ' and they believe this dynamic is at odds with the client's best interest.

The simple fact is that lawyers don't really sell time; we sell a service. Our goal should be providing value: advice that means solutions to our clients. Hourly billing doesn't address value and benefits ' the worth, as opposed to the cost, of the service. The best model for our profession, and the best path to personal satisfaction in each lawyer's practice, is to get paid for the real value and expertise brought to the client. And that requires a new billing dynamic.

How to Show Value

Emphasizing the value that the client received from the services provided allows a firm to generate billing statements that will be more meaningful to the client, and will go beyond a mere laundry list of tasks performed. Too many lawyers and law firms make the mistake of brevity when billing. They should break charges into basic elements, list all the specific actions taken, and describe the unique contributions by the firm that support 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.

Ultimately, the client, not the attorney, defines value. But, 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. Providing solutions gets attention ' and gets rewarded, if detailed and documented properly. Merely charging an hourly rate, with nothing unique about it, tells your client that you are no different from any other lawyer. Identifying and providing unique value will increase your revenues, will allow you to provide service to clients who truly appreciate you and the value you provide, and will result in your receiving the kind of work you want.

How to Provide Value

'Good service,' 'value,' and 'solutions' shouldn't be vague buzzwords. All lawyers, solo practitioners, and members of megafirms alike, can structure what they do to consistently encourage a high client perception of value. Basic elements of that include:

• Establish a return phone call policy. Return, or have an assistant return, all clients' phone calls within two to four hours.
• Know your clients' concerns and understand their business.
• Create a client-friendly office environment. Have informative literature in the waiting room, and make sure it's available in languages that reflect your clients' primary languages.
• Prepare your clients for interactive events such as negotiation sessions, depositions, and testimony so they know what to expect and are prepared for what might happen. Incorporate a wide range of possibilities so that clients are not shocked if the outcome, over which you have no control, is different from what they had hoped for.
• Never make promises you can't keep, and always keep promises you make.
• Regularly ask clients for feedback about whether they are pleased with your services. Focus on satisfaction with the service provided, rather than on the results achieved.

Another way to define and provide value is to establish what marketers call a unique selling proposition. Be different. Offer something that your competitors don't or can't. Create something new that your clients need or want. If you can't establish what makes you truly unique, you're really nothing more than a commodity to your clients. A unique selling proposition is a key strategy in establishing higher rates. It can be approached in a variety of ways. 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. Sometimes, showing that you provide better-than-excellent service is all you need to establish a unique proposition ' for example, final client documents nicely packaged in an attractive folder. You can also show that your firm is cutting edge. An effective Knowledge Management program is a good example. Electronic Knowledge Management, through a shared database, makes information available faster and more completely to clients and others in the firm. The result is greater efficiency, better communication, and faster turnaround, which can often help justify a higher effective hourly rate.

How to Raise Fees

The positive side of the pricing equation is that demonstrating your value enables you to make a convincing case about raising your fees. This is always a tricky thing to do, and the general ability to do it hinges on two factors, one qualitative and one quantitative. Qualitative considerations for a fee generally involve ethical questions of professional conduct. Is the amount of the fee reasonable and in proportion to the value of the services performed? Does the lawyer have the skill and experience to justify the fee? Does the client understand the amount and nature of the fee and consent to it? Quantitative factors typically come down to marketing considerations. Your fee must be competitive with others in your geographic and practice areas. You must know the current market conditions and the competitive pressures on legal fees. Each local market has its own characteristics. National trends do not control your situation.

Assuming you pass these two tests, the question becomes how best to make the case for raising your fees. The lawyer who thinks in terms of value can make these tangible arguments:

• You do more. Sometimes, showing that you provide better-than-excellent service is all you need to justify a fee increase ' for example, faster turnaround from engagement to completion.
• You achieve results. If you raise fees going forward after clients are happy due to your winning a motion or negotiating a favorable deal for them, the fee increase is more likely to be accepted.
• You are reasonable. The smaller the fee increase, the easier it is for clients to accept it. Adding 3% to 5% to an hourly fee won't turn off many clients.
• You handle a big-ticket or break-the-company case. In these instances, clients want whomever they perceive to be the best, and price typically is not a factor.
• You are cutting edge, using such benefits as knowledge management or client service teams.

How to Get Client Acceptance

Most clients recognize the importance of, and are willing to pay a fair fee for, value. What they do not want is to pay too much, to pay for inefficiencies, duplications, or unnecessary services. Commitment to the use of value billing requires commitment to three basic premises for success:

1) Communication is essential. Surveys uniformly show that clients are unhappier with surprises and unexplained costs in their bills than they are with high bills themselves. An upfront general statement about fees and alternatives, estimates and budgets, flow charts to explain who in the firm does what, all are crucial communication tools. Tailor this communication, and the fees themselves, to individual client perceptions of value.

2) Clients are not particularly knowledgeable about billing, particularly in their understanding of what equitable arrangements may exist. Law firms must seize the initiative by working with clients to develop specific pricing alternatives based on each client's preferences.

3) There is no universal, best-billing alternative. Client preferences and each firm's operations differ, and each project or case has factors that could accommodate various billing options. Those preferences and factors should drive the alternative billing considerations.

It is essential for every lawyer to understand the interaction between what law firms charge clients for their services, how effectively they collect their fees from clients, and how lawyers themselves are compensated for the work they bill. Ensuring any law firm's business success requires taking the kind of integrated approach to the entire issue of billing, collection, and compensation that I've recently covered in a new special report, Fees and Compensation for Law Firms: Value & Growth Dynamics. This report takes a down-to-earth look at billing methods that are easy to understand and make the bill more meaningful to the client. The entire topic is well worth any lawyer's time because cash cannot be realized until clients understand the benefits they have received from the lawyer's services ' and agree to pay the bill. The key is to understand and convey value to the client, expressed in clear and understandable terms.

Edward Poll helps attorneys and law firms increase their profitability by consulting with them on issues of internal operations, business development, and financial matters. He has 25 years experience as a practicing attorney and has also served as CEO and COO for several manufacturing businesses. In 1990, he founded LawBiz' Management Company and is now focused on coaching, speaking, and training law firms. Poll just released his newest book Law Firm Fees & Compensation: Value & Growth Dynamics (LawBiz^' Management, Co., 2008). He is also a columnist for the Association of Legal Administrators and contributes the 'LawBiz' Coach's Corner' to Lawyers Weekly.