Alternative Fees (Part 21): Recommendations

The new third edition of our free LegalBizDev Guide to Alternative Fees ends with a series of recommendations.  Here are the first five:

1. Don’t over analyze; just do it

Law firms tend to make decisions by committee, which is a great way to delay decisions.  In the current economic environment, the firms that act quickly, take risks, and learn from experience will win.

The best way to get started will vary from firm to firm, depending on their culture.

One approach is to publicize short, clear and simple policies from the top.  For example:

We will be very aggressive in using alternative fees for defensive marketing to protect relationships with top clients.  We will also be moderately aggressive in using alternative fees for offensive marketing, to find new clients.  All proposals over $x that include a non-hourly fixed or contingent component must be approved by ____.

Other firms may need to plan how to drive change and build internal buy-in before making any announcements.  Some may be able to make faster progress by simply giving leeway to a few key partners who are enthusiastic about this approach.

However it is accomplished, the important thing is to get started, as quickly as possible.

2. Ask clients what they want

Get out of the office, and talk to your top clients.  Listen.  Give them what they want and need.  That will be a good idea even if the economy improves.  And if it doesn’t, communicating better with top clients could become a matter of life and death.

If you don’t talk to your clients about alternative billing, someone else will.  Remember the case of Pfizer which awarded all of their 2008 and 2009 labor work to Jackson Lewis on an alternative fee basis, as described above.   The other law firms that had worked with Pfizer for years lost substantial revenues because Jackson Lewis was the first to offer an alternative fee arrangement.

And as Steve Barrett, the former CMO at Drinker Biddle put it, “once you lose the trusted advisor role, you are on the outside, and it could take five years to get back in.”  If you have any doubts about what happens to law firms after they start losing large clients, just ask lawyers who used to work for Heller Ehrman, Thelen, Wolf Block or Thacher Profitt, four AmLaw 200 firms that were dissolved in the last year. 

3. Identify internal champions

Some lawyers will be more enthusiastic than others about this approach, and some will be better than others at planning bids and managing projects.  They should be given the support they need to succeed.

A small number of people can make an enormous difference.  As mentioned above, at the 70 lawyer firm Bartlit Beck all decisions about pricing and staffing are made by a single person.  In my own experience owning and operating a training and consulting firm for 25 years, I have experimented several times with delegating the authority for bidding to others.  I don’t do that anymore.  Some critical tasks are best handled by a single person.

4. Get off to a good start

Kristin Sudholz, the Director of Practice Development at Drinker, Biddle & Reath, recently suggested several approaches to get off to a good start and sell the concept internally:

1. Work with a practice group that has more routine and regular work where the lawyers feel confident of the skill and effort needed, and develop a fixed price.

2. Do a historical analysis of past matters that might be similar to the matter for which you want to propose an alternative fee.

3. Pick a matter and develop and test a fee structure for it and monitor it for profitability.  Test on other matters, then share your approach with the lawyers.

4. Develop a desktop handbook for the lawyers on alternative fees that lays out the argument for them, best practices, types of fee structures with examples, worksheets, approval process and ideally, a list of people in the firm who can assist them with developing a fee structure...

What is most important is to create a comfort level for the lawyers by increasing their sense of certainty that an alternative fee arrangement will work for the firm and the client.

5. Increase efficiency by adapting tools from other professions

Other industries and professions have an enormous amount of experience bidding fixed price work, managing projects, and completing work within budget.  Many of their best practices have been refined over decades and can be adapted to help law firms increase profitability.  I will be writing about exactly how to do this in this blog Legal Business Development over the next few months, especially about bidding tactics and project management.