law firm management

The Hourly Rate is alive and well: there is no such thing as Alternative Fee Arrangements

If you are wondering what types of Alternative Fees Arrangements (AFAs) in-house General Counsel are asking their private practice suppliers to provide them with – or, to flip the coin, what AFAs private practice lawyers are charging their in-house GCs, then wonder no longer. The latest market report from the Association of Corporate Counsel (ACC) sets this out in a nice clear table:

Some take-aways:

  • The #1 AFA fee request of outside counsel is Discounted Hourly Rates. No less than 100% of companies with revenue over $20BN or more use Discounted Hourly Rates with their private practice lawyers! When, oh when, will we learn that Discounted Hourly Rates are NOT a fee structure? On this point, I have been arguing for years (literally, the linked post was from 2018!) that there is no point having a pricing function in your law firm if all you are going to offer clients is discounted hourly rates! Seriously, save yourselves the money.
  • Say what you want, the #BillableHour is far, far from over if it is the preferred billing method of over three-quarters (77%) of all in-house GCs participants in the survey!
  • Capped fees are dumb! They are a lose-lose: both for the law firm who if they come under the cap can only charge what is on the clock and if they go over the cap have to wear the additional cost; but also for the in-house team who will get under served as soon as it becomes clear the cap cannot be met (and probably never was going to be). So why are they so prevalent? I can only assume capped fees are driven by the CFO wanting “cost certainty”.
  • Given the continued popularity of hourly rates, Blended Hourly Rates are nowhere near as popular (at 37%) as you would think. On transactional matters in particular, you would think this rate of use would be a lot higher.
  • The use of Success Fees is woeful. Is this a reflection of the amount of M&A and privatization work actually being done (where you would expect it to be prevalent, or is it an actual fact that in-house counsel don’t like/understand the benefits of this arrangement? Or could it be, every deal is getting done so why take the uplift risk?)?
  • An understanding of Performance Based Holdbacks has a long, long way to go.

Importantly though, despite talking about implementing AFAs for over two decades, we are still a long way off actually using them in practice.

Again, take a look at my linked article above where I talk to Patrick Johansen’s Continuum of Fee Arrangements™, where Patrick sets out 16 different types of fee arrangements that can be used:

  • Hourly
  • Volume
  • Blended
  • Retainer
  • Capped
  • Task
  • Flat
  • Phase
  • Fixed
  • Contingency
  • Portfolio
  • Hybrid
  • Holdback
  • Risk Collar
  • Success/Bonus
  • Value

And ask yourself, how many of these are being actively used in this latest report from the ACC?

Notably missing from the list above? Value Based Billing!

Yes, despite what you may read and hear elsewhere, in practice we are long, long way away from understanding and implementing the appropriate (a term I learned from Toby Brown) use of relevant fee arrangement for the task at hand.

In-house or private practice, if you’re struggling to get to grips with this issue, feel free to reach out to me for a chat.

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‘Customer service’ vs ‘Customer experience’

Ever wondered if there is a difference between ‘customer service’ and ‘customer experience’?

I was fortunate enough to come across this quote by Paul Roberts, CEO at My Customer Lens that, frankly, sums it up better than anyone else I have seen lately:

“It’s important to define the difference between customer service and customer experience. I like to define customer service as what you do, and customer experience is how you make people feel.”

Too often in professional services firms we concentrate on the ‘customer service’ at the expense of the ‘customer experience’; when the reality is that we should be much more focused on the customer experience than we are on the customer service.

As the article states:

“Improving the client experience is about looking at the entire client journey, from initial enquiry through to case completion, and beyond. It’s a rethink and review of every customer touchpoint throughout your organisation; from the way the phone is answered, to your hold music, reception waiting room and website home page.”

Spot on advice.

If you or your firm is struggling to get a grip with this, feel free to reach out to me for a chat.

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Happy New Financial Year!

Happy New Financial Year to all in #Auslaw.

It’s that strange time of the year when we start all over again as if the previous 12 months didn’t happen. Only it is not quite as simple as that. From today:

  • most lawyers will be charging clients 10% or more extra for their services, with little or no explanation about where the extra value is being delivered and with the new fee rate being completely and totally justified by the date in the calendar and CPI rate increases.
  • judging by the LinkedIn notifications I have been receiving, a fair number of lawyers will be promoted to new roles – “congrats all”. Along with those promotions comes increased fees charged to clients!

So while we are all enjoying the various EOFY parties over the next few weeks, or simply enjoying some downtime over the school holidays: keep in mind that you need to have a carefully crafted value message to explain to your clients why you justify that higher fee rate; and if you want to ensure that your realisation rate stays healthy I suggest it be better crafted than “we are in a new financial year”.

And if you are struggling with any of that, feel free to reach out to me for a chat.

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Shoutout to Christine Jou on Unsplashed for the image 

“Burden partners”

Came across the term “Burden partners” in this article in the Australian Financial Review today. “Burden partners” is a term denoting those partners within a partnership whose cost to the partnership is greater than their contribution.

In simple terms, partners who withdraw more from the kitty than they have deposited.

The reality is that by its very nature (due to economic cycles), there will – from time-to-time – be partners who have years in which they withdraw more than they have deposited that year; but in most cases these partners will have previously made significantly higher deposits than withdrawals and are effectively withdrawing savings (having said that, retained earnings is not a given with law firm partnerships so this is more a reputational issue than financial one).

It is circumstances in which this is a prolonged (and often unfixable) trend where this becomes a problem.

You can also often see this with new partners who have probably been made-up too soon and don’t really have the book of business yet to justify their promotion to partnership ranks.

Either way, if the term “burden partners” sounds familiar and you want to discuss ways of how this can be fixed, feel free to reach out to me for a chat.

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Shoutout to Sean Stratton on Unsplash for today’s image

Unbundled legal services: Where have you been for the last decade or two?

As readers of this blog will hopefully have observed, I’m a very keen observer of up-and-coming developments in the legal industry. Frankly it’s my job to follow and understand emerging market developments and, particularly, how they may affect the way we serve our clients.

And so it was, with such a mindset, that almost two decades ago I came across a concept being touted as the next BIG thing: ‘unbundled legal services‘.

Along with ‘covenant lite loans‘ (this was pre-2008 after all), ‘unbundled legal services’ were going to transform and change the way we serviced our clients; particularly those sophisticated purchasers of legal services.

Then, just like that, ‘unbundled legal services’ went exactly…

…nowhere – never to be heard of again in polite conversation!

Return of the Jedi!

I’m here to tell you that, following a recent report by the Solicitors Regulation Authority (SRA) [England and Wales] – published on 15 June 2023, ‘unbundled legal services’ are back from the dead!

Before I go into what the SRA’s report says, and why it might be important, let’s take a helicopter look at what ‘unbundled legal services’ meant back in the early 2000s and what ‘unbundled legal services v2.0’ means today.

Unbundled legal services v1.0

From the outset ‘unbundled legal services’ were also known as ‘limited scope representation’, I think in part because this was the term more commonly used in the USA – although I’m happy to stand correct on that. Anyhow, at the name suggests, ‘limited scope representation’ means exactly that: your lawyer won’t do everything for you on your matter and it is up to you and your lawyer to divvy-up what they do and what you do.

For this reason ‘unbundled legal services’ were seen as being extremely sexy because you – the client – got to choose what your law firm did [and charged you for] and what you kept in-house. Even better, you – the client – now had the option to appoint subject matter experts for the “grey haired work” (as Maister would call it), but for more menial work you could appoint an LPO (anyone remember “Legal Process Outsourcing”?).

Such radically thinking could even lead to such a thing as ‘coopetition’ (as I have blogged on previously!).

But, despite the obvious benefits of growing headline revenue with ‘unbundled legal services’, I would hazard a guess that 20 years later less than 1% of most law firms’ revenue is derived from this product. Evidence of my thinking here is, I believe, substantiated by a recent article in the Law Society Gazette: ‘Unbundling? Never heard of it, say 40% of firms’ by John Hyde.

Unbundled legal services v2.0

So back to the SRA report and why unbundled legal services appears to be back in vogue.

While limited to “family law” issues, the SRA report includes two important comments:

  • The first, more a definition, is: “Unbundling describes the process of dividing tasks in a service between the consumer and provider. This can, among other things, make them more affordable and accessible.” and
  • the second, going to the crux of the issue: “Solicitors providing ‘unbundled’ services could make legal help affordable for those whom it is currently too expensive“.

QED, a possible solution to the Access to Justice (A2J) issue?

While I think both of those comments are correct, I want to quickly pause and cover a few of the other comments made in the Report. These include:

  1. We found that unbundling does have the potential to increase access to justice as it makes some legal services more affordable.
  2. Law firms could attract more clients as those clients knew they could in fact afford an unbundled deal.
  3. There are low levels of awareness of what unbundling is and how widely available it is, even though a number of providers already offer this.

All of which, in my experience, are true in the broader aspects of unbundling.

To finish up..

To finish up I’m going to use the SRA’s own wording in the Report; which is that the unbundling of legal services comes with complications that include:

  1. We found no significant difference in the level of satisfaction between consumers who used unbundled legal services and those who used an end-to-end service.
  2. Some consumers also wanted to have more control over their case.
  3. Some [law firm] providers would like to expand what they do but there are concerns around the impact on firms’ insurance premiums and the possibility of legal action if things go wrong which they were not responsible for.

Let’s not beat about the bush: Points 1 and 2 are relatively damning; but it is that last point where, in my opinion, unbundled legal services have died the death of a million cuts: while most firms and lawyers would consider offering this service, most insurers of professional indemnity [PI] insurance have no ideal of what it is or how to price the risk.

The last point is especially the case given the fact that most law firms have no real understanding of how to provide a letter of engagement to their clients with clearly defined scopes of services that don’t include a million assumptions and caveats or: “it depends” clauses.

Anyhow, setting aside all of the above, I continue to hope we will see a growth in ‘unbundled legal services’ while remaining sceptical it’ll happen.

If you need some help with how you can use unbundled legal services to successfully differentiate your firm’s offering, feel free to reach out to me for a chat.

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‘Is Australia the world’s most competitive legal market?’ – So what if it is!

Way back in 2014, my good friend John Grimley, off the back of some comments I made in his book ‘A Comprehensive Guide to the Asia-Pacific Legal Markets‘ asked the question: ‘Is Australia the world’s most competitive legal market?‘.

Many of us in Business Development who work in this market day-in, day-out believe that it is.

Evidence we often provide to back this claim up includes:

  • The sheer number of panel appointments: both at Government (Commonwealth, State and Local Council) and private sector (nearly every ASX100 company is now panelled), means we are tendering year round.
  • If we are not tendering for panels, then we are tendering for projects and sub-panels. Most major law firms in Australia will be doing 250+ tenders a year!
  • Client fluidity. Tenders are one part of this, but client movement among firms is increasing. The stickiness we used to see is no longer there and, frankly, it is getting harder and harder to keep clients in this market. We need to be on top of our game, ALL THE TIME!
  • Law firm consolidation: we have seen a fair amount of this in the past 10 years. Anyone remember HDY, Herbert Geer, Dibbs Barker, Kemp Strang? These days, when it rains, I can play a game of “spot the law firm umbrella that has outlasted the law firm“!
  • But perhaps one of the biggest signs of how competitive the market is here is the sheer number of partner lateral movement we see each year. I’m sure other markets, such as the US, have higher numbers of actual lateral partner movement; but, I suspect pro rata number of partners, Australia would be in the top 2 or 3 in this field.

So those of us who live and work in Business Development in Oz can put our hands up and say: “We live and work in one of the world’s most competitive markets”, where brand differentiation is difficult, and almost everyone relies on innovation and technology to set themselves apart from the pack.

If all above is true: What can we do about it?

Well, not a lot actually.

But, and here is the good news, over the weekend I read a blog post by Seth Godin which gave me hope that, actually, it doesn’t really matter.

In ‘Too much competition‘ Seth states something so profoundly obvious I have to wonder why I have cared about how competitive our market is for so long.

So what is that Seth said?

Focus on the customer

Here you go:

Focus on the customers who care enough about your idiosyncratic and particular offerings that they’ll not only happily walk away from the lesser alternatives, but they’ll tell the others.

Simple really!

Only it’s not. So if you need some help with how to successfully differentiate your firm in tenders, feel free to reach out to me for a chat.

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How can your law firm’s Business Development team succeed if they aren’t properly funded?

Reading ‘How law firm marketing & business development teams can deliver in a pivotal year‘ by Elizabeth Duffy on the Thomson Reuters site, I was struck by the following two stats:

  • On the client side, demand for legal services is projected to remain strong — 41% of clients say they plan to increase legal spending this year, and only 20% expect legal spending to decline.
  • On average, law firms are allocating 1% to 2% of revenues to marketing & business development budgets.

So, 41% of your clients are saying they plan to increase their legal spend this year, but you [as law firm management/managing partner] are only willing to allocate 1 to 2% of revenue to your business development and marketing efforts (which must be an all time low in the B2B sector). 

And, let’s keep in mind that’s business development + marketing combined. 

And, we all know the big winners in that expense allocation equation are marketing, not business development – the funnel, not the conversion.

But, like anything in life, law firm business development teams cannot succeed if they are not properly funded. If you want to:

  • pick the low hanging fruit
  • grow your share of client wallet

or any variation thereof, you need to make sure you invest in this critical function – and, frankly, 1 to 2% of revenue ain’t going to cut it!

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A different take on the end of the Billable Hour

I have read a lot recently about how AI and ChatGPT in particular is going to kill the billable hour. That may well end up happening. What I do suspect though is that it is unlikely to happen soon. And if the billable hour is to be killed off, technology – such as AI and ChatGPT – may well play a part, but it will be the cultural/behavioural change that’s needed that will be the final nail in this coffin.

Don’t believe me?

Here is a quote (of kinds) by Aarash Darroodi, Fender’s General Counsel, at the recent Legal Marketing Association’s annual gathering in Hollywood, Florida:

…the mere fact that he’s being billed by the hour isn’t a problem — but that the billable hour’s implementation can be.

In other words, Darroodi doesn’t mind that his law firm(s) charge him (his company) by the hour, but he does mind if you take him for a fool.

And until this mindset changes, you’re not going to see the death of the billable hour anytime soon.

Darroodi’s comments on the RFP process – should clients do an “open day” before tendering?

While Darroodi’s comments on the billable hour were interesting, his comments on the approach law firms should take to the RFP process were even more insightful. To quote from the article:

[Darroodi] described receiving template-based RFP responses from law firms — an approach he called “fundamentally a mistake.”

Instead, he would like to see a law firm respond to an RFP with an offer to come look at the company’s operations in-depth, gaining a better picture of his organization before a proposal is prepared.

“First of all, it shows initiative on your part. It shows the fact that you care,” he said. “And plus, it shows us that you’re going to submit something that’s directly related to our existing organization.”

Now I’m more than sure that not all GCs will take this approach. And before everyone in Australia says this would likely breach procurement protocols (after the RFP has been issued), I know.

But, wouldn’t it be interesting – and just a little more relevant, if clients did an “open day” before they issued the RFP? Particularly in cases where the tender is by invitation only?

In my view it would certainly make sense and would undoubtably result in more directly relevant and related (and probably eminently more readable) tender responses.

If you want to read anymore on either of the issue above, go read ‘Why Curiosity Is Key For Business Development Observations from the general counsel panel at this year’s LMA meeting‘ by Jeremy Barker on the Above The Law website.

Not only is it highly insightful – so “thanks for posting it Jeremy”, but it contains this nugget – again from Darroodi – on his views about client events (and if you are anEvents Manager in a law firm, stop reading now 🤣):

“I don’t want to spend time with my lawyers,” Darroodi said to laughter, comparing the idea to hanging out with his dentist. 

Ouch!

In the meantime, if you need help with your pricing or RFP responses, feel free to reach out to me.

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SURVEY REPORT: Half your clients are changing which lawyers they will give work to

An article by Neil Rose on Legal Futures website today (15.5.2023) has a statistics that should have every law firm business development expert shaking in their boots.

To quote:

45% of clients changing which practices they allocate work to in the past year

Nearly half of companies swapped external lawyers in last year

Taken from the latest ‘State of the UK Legal Market 2023‘ by Thomson Reuters, Rose’s report contains even more damning news for those marketers and business developers who thought law firms outranked lawyers in client choice selection:

Reputation has also dropped “dramatically” in importance for keeping a firm top-of-mind

On the positive front,

In the UK, more than in many other regions of the world, clients are focusing on the quality of the whole relationship with their advisers.

But, backing up the reputation comment above, the big takeaway for me has to be,

In a major shift over the past 10 years, the historical reputation of a law firm is no longer enough to keep it top-of-mind in the market. The message is clear: firms need to re-consider how they present and deliver value to clients…

I have deliberately bolded that part of the quote because if this is something that is likely to be concerning you, or if you feel this provides your law firm with a great opportunity, then feel free to reach out to me and let’s have a chat about how you can to work on this!

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Is It Fair To Charge Different Clients Different Rates?

Leaving aside the whole issue of whether or nor the billable hour is the best way to charge clients, do you think it is fair to charge different client different rates for the same work?

This article by Jordan Rothman on abovethelaw.com would suggest the answer to that question is – ‘yes’.

And I actually don’t disagree with Jordan’s outcome, but do disagree with his thinking of why.

After all, at least here in Australia, we very rarely have the same panel rate for all legal panels we are appointed to so; despite, or rather, the fact that we will be doing similar work under the various panel appointments.

QED – IMO – it’s fair to charge different clients different rates for the same work we do (and, HINT, it all comes out in the wash when you look at the Average Realised Rate – but I will leave that for another post).

But, and here is the critical difference I have with Jordan’s post, different clients will equate a different value to the work being done by you – and so it is more than fair to charge one client more or less than another client perceived on the value of the service they are getting.

For example, and I accept this is somewhat crude, somebody who has never been divorced before and whom your firm ‘looks after’ in a very emotional period of their life is way more likely to value the service your firm provides than someone going through their fifth divorce – so charge them more!

If you want to have a chat about how you can maximise your value opportunities, feel free to reach out.

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