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6 posts from April 2013

April 24, 2013

Are blended rates alternative fee arrangements?

Blended rates are 100% hourly arrangements, in which a single middle rate is charged for senior lawyers who normally charge more and junior lawyers who normally charge less. Whether the client or the firm benefits from this arrangement depends on the actual numbers in a particular situation.

For example, consider a case that is expected to require 100 hours of senior time at an average of $500 per hour ($50,000) and 100 hours of junior time at $300 per hour ($30,000), for a total of $80,000. A firm might offer a blended rate of $350 per hour, which reduces the predicted cost of the matter to $70,000 ($350 times 200 hours).

But now suppose that once the matter is underway, the firm discovers that almost all the work could actually be performed by more junior lawyers. If the senior lawyers only need to spend 20 hours supervising the matter (which would have cost $10,000 at the original rate of $500 times 20 hours), and junior lawyers put in the other 180 hours (which would have cost $54,000 at $300 times 180 hours), the client who pays the blended rate will actually pay more ($70,000) at the blended rate than they would have at the non-discounted rate ($64,000).

Now you could argue that it’s still a win-win, because if the firm had not offered blended rates, senior lawyers would have delivered 100 hours out of the 200. The client won by paying $70,000 instead of $80,000, and the firm won by charging $70,000 instead of $64,000.

From a marketing perspective, that is a terrible argument. In essence, it implies that senior people never should have been doing the work in the first place and the client must agree to be overcharged a little in order to avoid being overcharged a lot.

Blended rates invite gamesmanship, as individual lawyers may be tempted to manipulate predictions to maximize profit. And they encourage the use of more junior level lawyers, even when it may not be to the client’s benefit. Here’s how the general counsel at Marriott International described his unhappiness with his blended rate experience:

The law firm only assigned to the matter those lawyers whose regular hourly rate was at or below the blended rate, and more senior lawyers were unwilling to engage in significant supervision.

We will leave it to others to argue about whether blended rates are a good thing or a bad thing. In this context, what is important is that there is a philosophical difference between two types of alternative fee arrangement (AFA) definitions: narrow and broad. Our LegalBizDev Survey of Alternative Fee Arrangements used the narrow definition which reserves the term AFAs for fees that are fully or partly non-hourly. In contrast, when ALM published its AFA survey last year (Speaking Different Languages: Alternative Fee Arrangements for Law Firms and Legal Departments) they used the broad definition which includes blended rates.

People feel very strongly about which definition should be used. When members of our Advisory Board reviewed a draft of my book Legal Project Management, Pricing, and Alternative Fee Arrangements, some said that we made a mistake and that blended rates should be considered AFAs. Others said we made the opposite mistake and needed to be much more forceful in explaining that “blended rates are not alternative fee arrangements and are no different than discounting.”

The fact that two conflicting definitions of AFAs are in wide use adds considerable confusion to an area that was already confusing enough. If a firm claims that 50% of its work is performed on an alternative fee basis, that could mean that they are moving away from the billable hour (under the narrow definition), or it could mean that they are engaging in some creative hourly rate discounting (under the broad definition).

Some have a vested interest in maintaining this confusion. Announcing that a firm offers 50% of its work on an alternative fee basis sounds much more thoughtful and less desperate than saying, “Half the time, we have to slash our hourly rates because we need the business.” 

 

This post was adapted from my book Legal Project Management, Pricing, and Alternative Fee Arrangements.

 

April 23, 2013

Press release: Altman Weil and LegalBizDev announce new strategic alliance

NEWTOWN SQUARE, PA and BOSTON, MA,  April 23, 2013:  A new strategic alliance was announced today by Altman Weil, Inc., the leader in legal consulting since 1970, and LegalBizDev, the thought leader in training and advising lawyers on project management and business development.

The two consulting firms will remain independent entities, but will work side by side on selected client matters to provide solutions that fully integrate Altman Weil’s strategic advisory services with LegalBizDev’s tactical expertise. 

“Law firms face a dual challenge in 2013 – to deliver greater efficiency and value to current clients, and to win new clients in a contracting market.  LegalBizDev equips lawyers with practical tools and training to accomplish both,” said Altman Weil principal Thomas S. Clay.  “In our work with law firms, we often see a disconnect between strategic intention and bottom-line results.  LegalBizDev helps lawyers translate good strategy into effective action in these critically important areas.”

“The firms we work with increasingly ask us about the larger strategic implications of a more competitive legal marketplace,” said LegalBizDev founder and president, Jim Hassett, Ph.D.  “Should firms re-evaluate their overall marketing strategy?   Should lawyers be compensated for efficiency instead of for billing more hours?  How should practice group leaders manage these changes?  These are exactly the type of problems that Altman Weil has been solving for decades.  This new alliance will enable us to offer integrated services that align individual execution with firm-wide strategy.”

About Altman Weil, Inc.: For more than 40 years, Altman Weil (www.altmanweil.com) has been providing a broad range of strategic services to law firms and corporate law departments throughout the world.  The company has a deep understanding of how legal organizations work, and decades of experience working with lawyers to solve problems, enhance performance, and improve profitability.  Altman Weil provides advice on strategic planning, practice group management, client surveys and custom benchmarking, lawyer compensation systems, and more.

About LegalBizDev: Boston-based LegalBizDev (www.legalbizdev.com) helps law firms enhance client satisfaction and increase profitability by improving project management and business development. Since 1985, the company has offered award winning training, coaching, webinars, workshops, retreats, train the trainer programs, publications, and more.  Next month, LegalBizDev will publish the third edition of its Legal Project Management Quick Reference Guide, the most widely used reference in this rapidly growing field. The book was written by Hassett with 13 contributing authors and will feature dozens of tools and templates that law firms can use to increase efficiency, client satisfaction, value, and profitability.

 

April 17, 2013

Closing (Part 2 of 2): When should you ask for the business?

A lawyer that I was coaching once said that she wanted to spend more time “learning how to close.” It’s a request I’ve heard repeatedly, not just from lawyers but also from sales professionals.

Often, when people ask this question, what they really mean is, “What can I do to get new business faster?” I know, because many years ago when I hired Don Schrello as my first sales coach, that’s what I asked him. I still remember his reply: “Jim, selling takes time. You can’t make the corn grow faster because you’re hungry.”

Closing may be the most controversial part of the selling process. There are two main schools of thought, and they could not be farther apart.

The old school preaches that you should “close early, close hard, and close often.” In this view, the ABC of sales is Always Be Closing. If you’d like to dig into this school of thought, see Zig Ziglar’s book, Secrets of Closing the Sale: 410 pages of techniques with names like the Three Question Close, the Presidential Close, and the Nieman Marcus Close. And if those don’t work, you can try the Challenge Close, the Opportunity Close, the Kreepy Krawly Close, or dozens of others.

Do these names remind you of all your worst fears about the tackiness of selling? Me too. And we are not the only ones. They also offend many sales pros.

I’ve written before about my respect for Neil Rackham’s research. His book SPIN® Selling has an unfortunately misleading name, but more data than any other sales system. Near the beginning of the book (page 6), Rackham wrote that the professionals who sell complex products and services:

Complain that traditional sales training treats them as if they were selling used cars. What’s worse, it treats their customers as simpletons waiting to be exploited by verbal trickery and manipulation.

Rackham belongs to the new school of “consultative selling.” When he did his first study of closing several decades ago, Rackham observed 190 sales calls for a company that sold complex and expensive office equipment. (I suspect it was Xerox.) In each call, he simply counted the number of closing behaviors each salesperson tried. When Rackham later looked at which clients actually purchased the equipment, he was surprised to find that salespeople who used a low number of closing techniques (an average of 1.4 per visit) got more new business than people who used a high number (5.8 per visit).

So he did another study. This time he measured the effects of training to improve the closing skills of 47 professionals at a high tech company. The good news was that the training was quite effective in getting professionals to use more closing techniques in each call (3.2 closing behaviors per call before training vs. 5.6 closing behaviors per call afterwards). The bad news was that when people closed more aggressively after the training, sales went down.

This led to a third study. This one was in a chain of photographic stores that sold both high cost and low cost items. Again, people completed training to use closing techniques, and again, Rackham looked at actual sales. With high cost items, the results were the same as before: more training led to more closing actions and fewer sales. (Low cost items were different. But I don’t think those results are relevant to lawyers, unless they are billing less than $10 per hour.)

Does this research imply that you should never again “ask for the business”? Of course not. As Rackham Page 38) summed it up:

It may sound as though I’m saying that you shouldn’t try to close the sale—that because closing techniques are ineffective, you should somehow wait for the sale to close itself—but clearly this doesn’t work either.

He goes on to nod towards lawyers (page 39) when he says:

If the overuse of closing is a problem in many industrial and capital goods sales, then its total absence may be an equally severe problem in some service industries.

The trick is to find the balance. If you never ask, you will never receive. But if you ask too much, it will do more harm than good.

 

This post was adapted from my Legal Business Development Quick Reference Guide

April 10, 2013

Closing (Part 1 of 2): Can you learn to close faster?

Do you want to learn how to close new business faster? Me too. But we can’t.

Teaching people how to close deals faster is a little like teaching gardeners how to pick tomatoes. Picking them isn’t the hard part. The hard part is growing them.

Selling is a process of growing a relationship to a point where the close will come naturally. Buyers have their own timetables, and their timetables are more important than yours. Selling is a process that can’t be rushed.

What you can learn is how to keep the process moving, how to avoid spending too much time with people who will never buy, and how to maximize the chances that the process ends the way you want it to, with the close belonging to you, not to a competitor.

In the book Stop Telling, Start Selling: How to Use Customer-Focused Dialogue to Close Sales, Linda Richardson conceptualizes the selling process as a series of “small c closes,” each measured by an achievable objective, such as getting an appointment with a line manager who will influence the decision to engage a particular law firm.

Each small c close must flow logically in a developing relationship. Doing your homework and preparing a list of general milestones will help you ask for that line manager meeting exactly when you most need it, and are most likely to get it. (Note the resemblance between Richardson’s “small c closing” and Neil Rackham’s concept of advances.) 

If you ask for the meeting and get turned down, then you can ask a backup question about when you could meet a key manager. That answer may reveal other homework you need to do to get the business. If the client says, “Not until I learn more about your costs,” you know you’re still being auditioned for the work. If the client says, “As soon as I can arrange to bring in my boss,” you know you’ve made important progress.

You should also ask what other concerns the client may have, and ask it religiously. This question will often uncover issues that need to be resolved before the selling process can get to what Richardson calls the “capital C close” of actually signing a new engagement.

When you get near to that capital C moment, Richardson suggests asking questions regarding time frame, budgets, and the decision process. You can also ask whether there are any lingering questions about working with your firm. After you resolve them, that is the moment to ask for the business.

If the client isn’t ready to say yes at this point, use the opportunity to ask what else needs to be done before you can get started, and probe about what caused the hesitation. And when you find out, work on getting the client to feel confident that you can help them solve those problems too, and ask for the close again.

Richardson says that second, third, fourth efforts “don’t have to be hard sell. […Clients] want to do business with people who really want to work with them.” Your job is to make it clear how much you care, and why they should work with you.

 

This post was adapted from my Legal Business Development Quick Reference Guide.  

April 03, 2013

Business development tip of the month: Measure results

The business development tactics that work with one client may fail with another. What works for you may fail for your partner. And what works this year may fail next year. Markets change, people change, and fashions change. The only thing that does not change is the need for testing. As it says in the New Testament, “test everything, retain what is good.” (1 Thessalonians: 5:21)

 

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. This month’s tip was adapted from my book the Legal Business Development Quick Reference Guide.

April 02, 2013

Legal project management workshop in Chicago

On May 17, the Ark Group and Managing Partner magazine will present a “Legal Project Management Showcase and Workshop: Changing Behavior within the Firm” in Chicago.  When I chaired a similar event in New York two weeks ago, participants said:

“All of the speakers were excellent… with very different perspectives”

“I learned a great deal from their frank discussion about what had worked well at their firms and what had not worked well.  Also their frankness in the morning sessions set the tone for the small table discussions where people spoke very openly about challenges and things that had to be done to move forward at their respective firms.”

“This was a good panel – good diversity of viewpoints, and each of the panel members was willing to be candid about their experiences.”

There will be four panelists in Chicago, three of whom also spoke in New York:

Stuart Dodds, Director, Global Pricing and Legal Project Management, Baker & McKenzie

Albert Dotson, Partner, Bilzin Sumberg

Scott Kane, Partner, Squire Sanders

Mark Williamson, Principal, Gray Plant Mooty

All four firms are leaders in the LPM movement to increase efficiency and value to clients.  The panelists will compare notes about what has worked best, what hasn’t worked, and what they plan for the future. Near the end of the workshop, the audience will break into small groups to discuss unique challenges at their firms and to brainstorm the best way for each firm to make progress.

I will moderate the panel discussions, and some of the small group discussions will be led by LegalBizDev principals Mike Egnatchik and Steve Barrett.

One thing will be different from the March session.  Several audience members in New York asked for samples of tools and templates developed by the firms on the panel and by LegalBizDev, so that is what we will do in Chicago.  Sample tools and templates will not only be included in the workbook, but will also be discussed by panelists.

When I gave a speech at the beginning of the New York workshop, I said that if I were not already on this panel, I would have paid to attend the event.  It would have been worth every penny.  The workshop presented a rare opportunity to listen to partners in firms that are successfully implementing LPM brainstorm with each other about the nitty gritty details of exactly what is working and what isn’t.

If you plan to come to Chicago and are interested in alternative fees, you should also consider attending Ark’s Fourth Annual Alternative Fee Arrangements Forum which is in the same location the day before.  The speaker list is a who’s who of experts on the topic, including Fred Bartlit of Bartlit Beck, Mike Roster of the ACC Value Challenge Committee, Lisa Damon of Seyfarth Shaw, Paul Williams of Shook Hardy & Bacon, Richard Rosenblatt of Morgan Lewis and Pat Lamb of Valorem Law Group.  If you decide to attend both events, be sure to check the bottom of Ark’s registration form for a significant discount.