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4 posts from September 2011

September 28, 2011

The nine most common types of alternative fees

When I interviewed chairmen, senior partners, and C-level executives from AmLaw 100 firms (in the LegalBizDev Survey of Alternative Fees), nine types of AFAs were reported most frequently:

Fee caps:  In a fee cap, hourly rates are charged up to an agreed maximum amount for a particular matter.  Beyond that, if additional work is required to complete the matter, the law firm pays for it.  Of course, this is really just hourly billing with a twist: a hard limit on the maximum.  While this arrangement clearly benefits the client more than the law firm, some firms see it as an important way to get new work.

Fixed fees for single engagements:  A fixed fee for a single engagement sets a firm price for a set of well-defined services.  In order to succeed with this approach over the long run, firms must do many such deals, since they will surely win some and lose some.  This arrangement can be risky with new clients, before mutual trust and understanding has been established.

Fixed fee menus:  A fixed fee menu provides a list of fees for related services, or for segments of a particular matter.  For example, a fee of $25,000 might be quoted for a particular type of real estate transaction.  Then charges would be added to this base for different situations, such as plus $5,000 for assumption of an existing loan, $5,000 for a joint equity partner, and $7,500 for new financing.

Portfolio fixed fees:    Portfolio fixed fees set a single price for a large number of matters, such as all of a Fortune 100 company’s US labor and employment cases in a single year.  As in other fixed fee arrangements, the key to success is to have a large volume of matters, so that there will be enough wins to offset the inevitable losses.

Retainers:  A retainer is a fee that a client agrees to pay every month, or on some other regular basis, in return for specified services.  These have been in place for many years, but may become more frequent when alternative fees grow in influence.  Many firms see them as a great marketing tool, since clients are more likely to pick up the phone than they would be if they were paying by the hour, and this can lead to discussions of other new business. 

Partial contingencies/Success fees:  In a partial contingency arrangement, a law firm typically receives part of its normal hourly fees as a matter proceeds, and a lump sum—or success fee—at the end of the matter, depending on the result. Criteria for success fees are sometimes spelled out at length, and sometimes left entirely to the client’s discretion.  Clearly this can have the benefit of aligning the interests of clients and their law firms.

Holdbacks:  A holdback is a type of partial contingency arrangement in which the law firm is guaranteed part of its fees, but the other part is contingent upon the case’s success.  For example, a firm may receive 80% of its normal rates while a matter is underway.  At the end, it may be given the remaining 20%, or less, depending on the client’s satisfaction with the result.  This may also be combined with a success fee that provides a bonus for a positive result.

Full contingencies:  In a full contingency arrangement, fees depend entirely on success.  This approach has long been used by plaintiffs’ lawyers, but it is now becoming more common for the defense to use as well. 

Risk collars:  Lawyers use the term risk collar to refer to an hourly billing arrangement built around an estimated budget for a particular matter.  The client pays a bonus if work is completed under budget and/or gets a discount if the work goes over the budget.  Like a fee cap, this is really just a variation on hourly work, but unlike a fee cap it may align interests and offer incentives to both clients and law firms.  The actual discounts and bonuses vary widely. 

This list has been reprinted in my new book, the Legal Business Development Quick Reference Guide.


September 21, 2011

Free sample chapters from my new book on legal business development

My new Legal Business Development Quick Reference Guide will be published next January.  It is a companion volume to my Legal Project Management Quick Reference Guide, which describes how to deliver more value to clients.  This new book will explain how to find clients in the first place. To download free sample chapters and an order form, click here.  An abridged version of the preface – “How to use this book” appears below.

I know you don’t have time for marketing.  You can barely find time to go home on Saturday.

But you know that marketing is more important to lawyers than ever before. Whether you are focused on financial security, personal satisfaction, or becoming a great lawyer, the key to success lies in improving your service and your relationships.  That equals marketing.  So you know in your heart that you MUST find a way to fit some marketing time into your overcrowded schedule. 

I have good news and bad news. 

The good news is that lawyers can achieve significant marketing progress in as little as an hour a week, as long as they limit their efforts to current clients and referral sources.  This won’t produce new clients, but it may produce new revenue.  And even if it doesn’t, it will protect your most important asset: the clients you already have. 

The bad news is that finding new clients is the hardest work you can do in a suit.  If that’s your marketing goal, you will need to make a serious time commitment. 

But even here, there’s some good news.  You can substantially increase your chances of success by focusing on the tactics that best fit your practice and your personality.  And even if you’ve never thought of yourself as a marketer, you may find that you have the talent and interest to become a top rainmaker.

Whatever your goal, the keys to legal marketing success are prioritization and follow-up.  You must prioritize tactics based on how quickly they will work for you, and then follow up with efficient action items.  This book provides tools which can help you become more disciplined about prioritizing and become relentless about following up. 

This book is organized alphabetically to make it easy to find exactly the information you need, just when you need it.  Its checklists, samples, reports, and quick references will help you to increase new business more quickly.  Whether you need to create an elevator speech, improve networking, qualify a prospect, plan a meeting, increase client satisfaction, or begin another business development task, this book will provide ideas that will improve your results.

I wish I could say this Quick Reference Guide will make business development easy, but I can’t.  It takes a long time to build the type of relationships that lead a new client to hire a lawyer, and no one can build your relationships for you. 

So if you are looking for a magic cure, you should look elsewhere.  But if you are willing to put time into business development, this Quick Reference Guide will help you develop new business more efficiently by focusing on the activities that are most likely to produce immediate and practical results for your practice, your personality and your schedule.

If you get serious about business development before your competitors do, you may be able to bring in some new business relatively quickly.  When we started working with lawyers seven years ago, we were frankly surprised at how often a simple action led to new business with current clients.  For example, a number of early clients whom we coached decided to offer a free meeting to current clients, simply to learn more about their business.  A surprisingly high percentage of them have walked out of those meetings with new engagements. 

In twenty years of training sales professionals in other industries, we had never seen a free meeting lead immediately to new business with a current client.  But with lawyers, we saw it over and over. 

In describing that success in the first edition of this book, I wrote:

The activities we recommend are still relatively novel in the legal world, so there’s a lot of low hanging fruit.  As more and more lawyers learn how to pick that low hanging fruit, everyone will have to reach higher for what’s left.

Which is exactly what happened.  Many of your competitors have gotten smarter about marketing, and it is harder than it used to be to find low hanging fruit.  However, that does not change the steps you must take to satisfy clients.  Instead, it means that it is more important than ever to keep your clients happy, before somebody else does. 

Can every lawyer really learn to succeed at marketing?  Absolutely.  Only a few will develop into the great rainmakers who bring in new clients, year after year.  But any lawyer who has clients can learn, and must learn, to build stronger relationships. 

Do you need to do this yourself?  Yes.  Many lawyers have tried to hire people to market for them, so that they can spend all their time on the law.  This will not work in the current environment.  Mind you, I am a professional marketer, so of course I believe that people like me are an important part of any business development team.  But I also know that marketing professionals can’t do it alone. 

The only way to grow legal business is to grow personal relationships.  Your personal relationships.  If you need to exercise, you can’t hire somebody else to do your pushups.  And if you need more marketing, you can’t hire somebody else to build your relationships.

Do you want to devote time to developing new business?  Frankly, it doesn’t matter.  Sure, it would be wonderful if you loved marketing. The more you enjoy it, the more likely you are to follow up and succeed. 

But if you want to get paid for working as a lawyer, you must have clients.  Your competitors are getting better at marketing, and trying to take your clients.  The only way to defend yourself is to become a better marketer, whether you like it or not. 

Once you start having some success, I think you will like it.  Until then, just put it in the same category as exercising and do it.

To download free sample chapters and an order form, click here.

September 14, 2011

How to manage budget risks – The example of enforcing a non-compete

This guest post was written by Richard Rosenblatt, a partner in Morgan Lewis's Labor and Employment Practice.  It is an edited version of an essay he wrote as a participant in our Certified Legal Project Manager™ program.

Rose_01924 When we represent clients seeking to enforce non-competes, there are many risk factors that can affect the success and cost of the matter.  I used the Project Risk Analysis Template (from the Legal Project Management Quick Reference Guide) to rate eight top risks to non-compete budgets, including large scale e-discovery, a change in venue, and the defendant filing a motion to dismiss.  Then I considered ways to reduce each risk. 

The factor that posed the highest risk to realization of our time charges was simple:  the client is surprised at the fees.

Typically clients will ask how much it will cost to enforce a non-compete agreement before we have much idea of the work that will be required, how the adversary is likely to react and even the court in which the matter will be litigated.  If these matters need to be aggressively litigated through an accelerated court hearing, it is akin to compressing two years of litigation into two months, causing the fees to quickly escalate.  At some point, the principle that drives a client to enforce a non-compete often gives way to concerns about whether further pursuit is worth the expense.  

The first key to avoid having a dissatisfied client is to openly communicate how much the matter is likely to cost, before it begins.  A detailed fee estimate should be presented with specific assumptions as to the number of depositions, motions practice, etc.  The lawyer must stress that this is only an estimate, and that additional information would be required to turn it into a fixed budget.  That way, the client cannot be lulled into thinking that an enforcement action is a slam-dunk with no expense. 

During the course of the matter, it is important to constantly communicate legal spend.  These matters move quickly and can get out of control before a client ever sees the first bill.  This will result in sticker shock if it is not managed in advance. 

Another big problem that can result in a dissatisfied client is failing to push back upon an unreasonable client.  Very often, lawyers tell clients what they want to hear because they do not want to appear weak or contradictory of the client's desires.  That is a recipe for disaster. 

It is imperative to push the client's interests zealously, but prudently.  If the client expects to win and outside counsel identifies risks, outside counsel needs to explain the risk and suggest strategies to reduce it.  The lawyer must give an honest assessment to ensure that the client makes the right business decision.  In the long run, the client will be satisfied with candid advice -- even if it is not always what it wants to hear. 

As I often say to clients:  "You pay me way too much money to be less than candid with you. . ."  This creates realistic expectations, and also motivates the client to prioritize the work flows necessary to succeed.  Ultimately, this is the only way to meet a client’s needs.

September 07, 2011

Tip of the month: Listen

Many lawyers are better at talking than at listening.  But experts say that when you develop new business you should listen 50% to 80% of the time.  And the most effective project managers are also experts at listening to clients and to team members.  As former CNN celebrity Larry King put it:  “I never learned a thing when I was talking.”

The first Wednesday of every month is devoted to a very short and simple tip like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business.