fees

The law firm disconnect in two images

This week saw the publication of LexisNexis’s Bellwether Report 2016. titled:- ‘The Riddle of Perception‘.

Based on structured interviews with 122 independent lawyers and 108 clients (all UK-based I believe), this year’s Report provides valuable insight into the thinking of lawyers and law firms and, incredibly, how far removed that thinking still appears to be from the views of their clients.

None so is this more starkly brought home to me than in two separate images in the Report in response to questions put forward around the issue of fixed fees.

The first (which is actually the second in the Report) can be found on page 22:-

Image 1

[click on image to enlarge]

where, in response to “Which of the following is an opportunity for your business going forward?” – 43% answered: fixed fees.

The second is found earlier in the Report on page 18, where when asked what “Changes forms implemented in the last year or plan to implement in the forthcoming year?” – a “deliberate shift towards fixed/capped fees” raked 12th. with only 13% saying there was anything planned around this for the forthcoming year.

Image 2

[click on image to enlarge]

Now call me crazy, but that seems to be as close as you can get to madness.

Read the Report though, it really is very good.

RWS_01

Do you know your ABR?

Business Development image

There has been a fair amount written in recent days following an article published in the Wall Street Journal that ‘Legal Fees Cross New Mark: $1,500 an Hour‘. Most of the published articles I’ve read talk to the outrage of commanding such a high hourly charge-out rate, but this article by Stephen Harper caught my attention.

In the article, citing data from ‘The 2016 Report on the State of the Legal Market‘ by Georgetown University Law Center and Thomson Reuters Peer Monitor, Harper states that:-

“In 2005, collections totaled 93 percent of standard rates, the report found. By the end of 2015, the realization rate was down to 83 percent.”

Although US-based, this sad statistic very much reflects on an issue I touched on in my post on fixed fees in the Australian market yesterday; namely that 25% of Australian law firm revenue is now derived from “discounted” hourly rates.

If we say then that roughly 1/4 of a law firm’s revenue comes from discounted hourly rates, and that the firm is being paid approximately 83c in the $1, [compounded] we have a very serious profitability problem.

On these numbers alone, any law firm looking at its profit margin should be rushing into fixed fees – while admittedly upskilling themselves (including tracking data) on how to do this better.

And part of this process should also include an understanding of, as well as tracking, what each individual lawyer’s Average Billing Rate (ABR) is.

In the many hundreds of tenders I have done and the numerous conversations I have had with lawyers over the years, I have never once come across either a request for what the particular lawyer’s ABR is, nor heard the lawyer freely admit this rate. I have, on the other hand, heard daily the hourly rates that particular lawyers charge as if this were the reason why they were hired (there being an assumption that the higher your charge-out rate, the better value you provide!).

And therein lies the problem, as Harper says:-

“How much a firm bills doesn’t matter; what it actually brings in the door does.”

Too right. So the next time you hear a lawyer talk up their hourly rate, you might want to ask them what their ABR is – because that’s going to be a far better indicator of the value their clients see them providing. And if you get an answer, you might then want to talk to them about the benefits of fixed fee pricing.

The hidden dangers of discounting your fees

Business Development image

Today’s post is a short rant about the practice and dangers of discounting your legal fees, followed by a useful collection of 20 questions I found earlier that you should be asking yourself if you are discounting your fees.

I’ll start off by disclosing that I hate it when lawyers discount their fees. I especially hate it when this is done without any request by the client – a far more prevalent practice than is perhaps admitted – or consultation with others in the firm (including the practice of discounting on other lawyers’ rates in your firm without even asking them if this is OK!).

(more…)