Marketing Law Firm Value: Alternative Fee Arrangements
There are dramatic changes occurring in the legal profession. Some changes are the result of economic pressures and others are forced upon lawyers and law firms by the clients they serve. These days, being a lawyer is less about the practice of law and, out of necessity, more about the business of law.
At the heart of these changes is a question plaguing managing partners, practice group chairs, CMOs and marketing staff, and every service provider in the law firm - "How do we define and market our value?" Many believe the answer lies in the philosophy and application of alternative fee arrangements (AFAs), a topic of much discussion, criticism, and confusion as more corporate counsel seek to hasten the elimination of the billable hour.
AFAs can be a bitter pill for many firms to swallow. Prospectively, firms will have to alter the ways in which they approach the handling of cases, but they will not be able to do so, at least not profitably, without thoroughly examining historical revenues and costs to accurately forecast fees of future cases. This process may even require new roles, responsibilities, and hierarchies within the law firm.
Once a firm successfully completes this internal due diligence, it must then incorporate AFA approaches and philosophies into its Public Reputation Management Plan. Now is the time for firms to re-think the value of the professional services they provide.
Responding to market demand
Although rarely discussed as a marketing issue, law firm billing rates have always had marketing/business development and client satisfaction consequences, but usually not until the invoice crosses the client's desk, or worse, when the firm is trying to collect its fees.i As attorneys who have fielded billing calls from angry clients will attest, those situations aren't the best settings in which to promote the firm's value proposition.
Today, the issue of pricing - and law firm value in general - is one that firms face not only at the beginning of new client relationships, but also with existing clients that are weighing their options among a growing supply of legal service providers.
The topic that is at the top of any client-led agenda is a requiem for the billable hour. Hourly rate pricing has become the elephant in the room that firms don't wish to discuss, but given the perilous state of the economy, are forced to do so now.
The billable hour offers the client no certainty vis-à-vis budgets or anticipated matter costs. On its surface, it poses no hard incentives for a firm to streamline workflow efficiencies, outsource routine tasks to lower-cost service providers, or seek quick resolution or closure to a matter.
Given today's economic environment and the outlook for legal services, embracing the value points most important to the client will be the differentiators of truly successful firms in the future. These law firm value points are the fundamental drivers behind alternative fee arrangements:
- efficiency and appropriate allocation of resources;
- alignment with client risk; and
- cost of legal services relative to matter results.
Marketing and Public Reputation Management for AFAs
For firms that have a strategic marketing plan in place, integrating tactics for AFAs need not be taxing. For firms that haven't developed a marketing strategy or that haven't addressed AFAs within their strategic plan, AFAs provide the impetus to assess their value propositions and produce a plan accordingly.
The threshold question any firm needs to ask itself is, "What stance are we going to take on AFAs?" And if it chooses to explore the idea further, "Are we going to be conservative or aggressive?" Successful AFA adoption and implementation at any firm requires two critical ingredients - thorough preparation and a dedication to building trust.
Experts agree that a firm must do its homework before beginning any conversations with clients and prospects about AFAs, including:
analyzing different types of matters to determine historical costs, possible alternative fee ranges, and savings opportunities;
aligning compensation and recognition to AFA performance;
gauging whether the firm is equipped with the personnel, vendor support, culture, and mindset;
supplementing current knowledge systems - primarily, time and billing applications; ii
dissecting the philosophies of the leading AFA firms; and
assessing the threat to current client relationships from competitors that promote AFAs.
Once the firm is well informed and well versed in AFA methodologies and practices, executing an AFA engagement that fulfills everyone's expectations requires commitment from both client and counsel. AFA advocates within a firm must include colleagues and firm management as the targets of their marketing efforts. And for good reason - AFAs represent a shift in the practice of law itself.
Build your AFA marketing strategy
As firms begin down the AFA path, it is critical to keep these ideals in mind during planning and implementation.
Go to your best clients first
AFA modeling cannot happen in a vacuum; rather, it is accomplished through direct experimentation and refinement. The optimal place to begin is with the firm's best clients. In this safe harbor, attorney-client business relationships are more secure, with more open communication.
Put your communications game plan together
Once you've beta-tested your AFA models and outlined the process, you need to determine the messages and means by which you will promote your AFA proficiency.
First, the firm needs to add an AFA piece to its internal business development training and coaching curriculum. Attorneys responsible for test cases with best clients should be enlisted to prepare or at least contribute to presentations to other attorneys, developing a brief "elevator pitch" for staff attorneys, and preparing an internal handbook and a checklist for attorneys and billing/accounting staff to evaluate new AFA opportunities prior to a formal engagement.
The main thrust here is to have attorneys comprehend the business implications of AFAs for the client, the firm, and themselves. It is imperative that AFAs are endorsed by firm leadership as a strategic decision, and not painted as a sales gimmick.
Next, consider revising the formal documents that clients will see first - proposals and engagement letters. Proposals to provide legal services, including responses to RFPs, are unquestionably marketing tools, and as such, need to identify and acknowledge clients' needs while thoughtfully and adroitly explaining how the firm will alleviate that pain.
AFAs are inherently relationship-oriented and are extremely well suited as a discussion topic in a proposal. They require the firm to match the value of its services to the specific client and matter.
Once the firm succeeds in communicating its value with a proposal and other business development activities, the engagement letter should keep the momentum going and provide a written roadmap for the ensuing relationship. Along these same lines, firms must consider how to design or revise content for other written and electronic communications.
Develop an AFA Public Reputation Management Plan
A law firm's Public Reputation encompasses all of its promotional work to build, manage, and sustain its outward image and foster growth. For an AFA-specific Public Reputation Management Plan, a firm may opt to deploy a few tactics at first, and then augment them and add more going forward. The good news is, once the firm goes through the steps to assemble a communications plan (described above), much of the hard work of developing an insular AFA Public Reputation Management Strategy is already done.
Without question, AFAs will change the legal profession. Interestingly, some experts predict a new set of roles within the law firm responsible not only for ascertaining the economic feasibility of fixed-fee and other AFA engagements, but also for managing the teams doing the work under those structures. Pricing specialists and project managers will have increased importance as AFAs replace the billable hour and become the new billing standard, and they will be tasked with selecting and overseeing internal and external resources, helping to guide cost-efficient strategies, and ensuring matter profitability. iii
As with any shift in the marketplace, those that see opportunity rather than hardship stand to reap the benefits, and the law firm that recognizes AFAs as a means to differentiate itself will outdistance the competition. §
Shani Magosky is the Executive Vice President and Chief Operating Officer and Kathy O'Brien is Vice President of Public Reputation Services at Jaffe PR. This article is a summary version of a White Paper of the same title. To see the full White Paper, visit www.tinyurl.com/jaffeafa.
i Raymond, Nate, "In Rare Move, Debevoise Sues Client Over $6 Million in Unpaid Bills," New York Law Journal, December 9, 2009
ii Three Geeks and a Law Blog, "The Evolution of AFAs: Law Firm Side," September 25, 2009, http://www.geeklawblog.com.
iii Sirkin, Mark, Ph.D., New Roles in the Law Firm of the Future, Hildebrandt Consulting, November 16, 2009, http://www.hildebrandt.com. See also Three Geeks and a Law Blog, "The Evolution of AFAs: Law Firm Side."
Information is current to November 2, 2010. The information contained in this release is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.