Tag: Alternative Fee

27 Aug 09

I love how much is being discussed in regard to “Alternative Billing” in the legal community right now. However, for most folks “Alternative Billing” just means Fixed Fee or Flat Fee Project billing. There ARE alternatives to these “alternatives”!

First off, I know there are very complex fixed fee arrangements that exist for litigation. Usually involving fixed fees for different stages of the litigation process. But for some lawyers, evaluating the fixed fee process for the first time it seems very simple: Project one = $5,000. Not so fast! Be careful when proposing fixed fee arrangements. Use this cautionary hypothetical tale to keep you in check!

So, you’re getting pressure from your client (or Customer as Summit Law Group refers to folks who buy legal services from us) and your colleagues to come up with Fixed Fees for a litigation matter. As is the case with 80% of litigation matters there are a MILLION possible directions the case could go! And a multitude of complications within each of those directions! When bidding on a fixed fee litigation project, remain calm, don’t let your mind and anxiety drive you too far. “So many things could go wrong!”

Your #1 objective for proposing alternative fee arrangement is: Risk Sharing with your client. Of course anything could go wrong! Imagine the fear of “anything could go wrong” from your client’s perspective! If they are contacting you for litigation assistance, it likely already has gone wrong!

So, the real point of this entry was going to be about “Cautions for Fixed Fee billing”.

Caution #1: Think about pricing from your client’s standpoint. Is this flat fee sufficient to get the work done efficiently and fairly while saving your client money and giving them confidence in a job well done?

Caution #2: Don’t under bid! If you’re well known for using alternative fee structures by other firms it’s likely they will try very hard to bust your flat fee structure into pieces by dragging out the case. If you end up under bidding on the flat fee you put yourself in a tough spot. If this DOES happen to you, remember this IS part of the “risk sharing”. Your part of the risk was estimating the efficiency. You’re not efficient? Your problem!

Caution #3: No padding! Don’t just take your hourly rate and count on your fingers how many hours this will take you, then add 30% “just in case”. The “just in case” part is your risk. Think about the scope of the case at hand and what would be a reasonable fee for your team. If you’re new to the litigation game, then you likely have NO clue how to judge reasonableness.

What are your thoughts?

Filed under: Legal

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9 Mar 09

This post by Marshall Isaacs is hilarious! A must-read!

Exclusive Interview with Mrs. Billable Hour

Filed under: Uncategorized

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27 Feb 09

I love Twitter! I learn so much. One of my fellow legal colleagues, Matt Homann of the (non)billable hour, mentioned his proposal to one of his legal consulting clients (he’s a consultant to law firms, among other things). Here was the tag line that caught me by surprise, “Just had another great call with coaching client. Building him a brand new, timesheet-free practice niche in Omaha! Gonna be really cool.

Timesheet-free practice??? I have to admit, I was fascinated by how this was going to be possible! Upon inquiring, here was our exchange….

@LegalAdmin (me): “Timesheet-Free??? Tell us more!”

: “Tell me more. Why must you measure time spent to measure success?”

@LegalAdmin (me):
Suggesting that we not keep track of productivity is like saying a business shouldn’t care how many widgets they produce.”

: “
But timesheets don’t measure productivity, they measure time spent working. Big difference. Client happiness is better metric.”

@LegalAdmin (me): Don’t get me wrong, alternative fees are fantastic, but it can’t be treated as pulling a rabbit out of the hat.”

@LegalAdmin (me): Of course client happiness determines success! As a business we still have to track COGS. (Tough discussion in 140 characters)”

So, as I said in my last post, continuing this conversation 140 twitter characters at a time would never give either of us a chance to explain real points of expertise.

By all means, I know and feel exactly what Matt is talking about. Why shouldn’t we redefine how law firms and the practice of law operate? We’re certainly cut from that same cloth! Our variations of opinion are very complicated.

I hear him telling me that the only measure of success for any legal practice is the Client’s Happiness. I ceratinly agree that no lawyer or administrator should ever disagree with that thought.

Unfortunately, I think that theory lacks depth of thought from a business perspective. How invoices are billed to a customer (Summit calls them customers) doesn’t have to relate to the measurements of productivity inside the firm. However, in order for the firm to best evaluate how attorneys perform for their customers and how to evaluate how the attorney is paid, tracking time as the baseline for performance is the only way to measure services.

“Measure” is an internal evaluation. Using hours productivity is not to measure the success of a customer’s happiness. It’s a BASELINE

Let’s take an example from the manufacturing industry. They may have set a “flat fee” of $500 for XYZ Television. However, I would bet they can tell you exactly how much the pieces cost to go into that television. So, they know that the Cost of Goods Sold (or cost of the combine pieces and energy it took to build that television) is $380, leaving a profit margin of $120. So, how would they know that $500 is the right price if they didn’t also know how much the components were costing them?

Under Matt’s model in a manufacturing environment, we just sell TV’s. We don’t need to know how much each component costs or how many TV’s we produced today. As long as the customer buys the TV and loves the quality of the new TV, then that pays all the bills and the whole world is a better place.

Does that same manufacturer not create an Income Statement or other monthly financial statements? After all, these are also measurement tools for evaluating how we’re performing compared to past periods.

Customers can have the most amazing experiences and receive the best service and a lawyer can still go out of business when they don’t manage their business.

I don’t think recording hours has to affect fix fee arrangements at all! When a lawyer makes a fix fee arrangement with a customer, that is the fee, period. Even by setting a flat fee they still have to record their time to show themselves how accurate their fixed fee invoice was evaluated from a profitability standpoint. Fix fee arrangements aren’t so much to save a customer money, but to give the customer a tool for predicting and budgeting the investment in the legal project.

I hope this better explains why I’m concerned about completely abandoning the recording of hours. Elimating the “Billable Hour” as it exists on customer invoices is totally fine by me! But firms and lawyers still have to have a baseline and since the widget we sell is a service it’s still time regardless of how it’s packaged for sale.

(Matt I ceratinly hope you can educate me on your process.)

Filed under: Legal

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