Published: The Recorder
Alternative fee arrangements (AFAs) are here to stay and offer firms an opportunity from a profitability, infrastructure and business development standpoint. By AFAs, I’m referring to a non-hourly billing arrangement; this does not include a discounted hourly rate, nor does it comprise contingency work. The level of talk, puzzlement and concern currently exceeds AFAs’ actual implementation, but interest keeps mounting and will only continue. While the financial aspect of AFAs is vital, using them to your marketing benefit as a point of differentiation is equally important.
When a firm lets its markets know that it is willing to create compensation arrangements that let go of the billable hour, it is sending several messages. A primary message is that the firm is listening to its clients and the marketplace. It has heard and understood the dissatisfaction that many clients have with the hourly arrangement and has put its financial and creative minds to work to develop a different offering. By implementing AFAs, the firm is also more closely aligning with its clients. The firm imparts the message that it understands clients have also been under tremendous pressure to not just cut costs, but to be more efficient. By releasing its tenacious grip on the billable hour, the firm conveys that it also has done an internal review and fashioned a way to deliver value more efficiently and profitably.
The messages your firm communicates by offering AFAs as an option are not inconsequential as you can see; however, you must disseminate those messages to your markets if they are to be heard and remembered. If you keep this fee option in your back pocket and only bring it out when asked or pressed, you suppress its marketing power. Given that the unquestioning acceptance of the billable hour is gone, no matter how healthy the economy, it is wise to gain an understanding of AFAs now while you still have the concomitant beneficial communication points.
From a marketing perspective, the success of AFAs has to do with the same counsel that in-house lawyers have been giving those in private practice for years in terms of asking what the client wants and then listening. It’s also vital that you not do this in a vacuum. You want to ask your clients for data, especially if you are developing a proposal for a prospective client. For example, ask the client how much their matters cost, how many hours on average have they been billed for this type of work, and other similar questions. While this information is important, gathering it gives you an opportunity to understand your clients better—their processes, needs, and politics—all of which can be helpful in solidifying your relationships with them.
Being successful in incorporating AFAs is similar to being successful in marketing. To make AFAs work, you need solid financial metrics with reliable budget and tracking mechanisms. The same is true of measuring your marketing efforts. You need a means to capture lead generation, not just new business. Some firms resist offering financial options because they don’t have detailed enough financial data—information that can be analyzed in many different ways. Similarly, many firms resist tracking their marketing results, insisting that they have enough information simply because they can track—sort of—where their new business comes from, as opposed to where all leads come from. While you are re-examining your financial foundation, you can take advantage of this process and implement the systems that will support your success, such as a means to capture all your leads no matter the source.
Some firms consider “shadow” invoicing, going back to clients after the fact and showing them what they saved via AFAs as opposed to your firm’s charging hourly. Opinions are divided as to whether or not this system is beneficial. There are firms who report back on savings after the fact and find that this enhances their client relationship and marketing. I’m more in line with the opposing camp, which eschews shadow invoicing and focuses instead on the results. The underlying philosophy is that you gave your client a price, which he accepted. You completed the work and achieved the results. As far as the client is concerned, that is the end of the story. There is no right or wrong to the question of shadow invoicing, and it may make sense in some situations and practice areas, while in others it does not.
Not every kind of work lends itself to AFAs. Routine work, such as labor, contract, or collection matters best fits into the framework, but even sophisticated work may have aspects that work for AFAs. In litigation, perhaps this includes the work up through trial. Most likely, if you analyze the work your firm does, there are some aspects where you can offer choices when it comes to how clients pay.
Right now, having AFAs gives you the competitive advantage. Therefore, consider leading with it. Make use of the seemingly obvious but often overlooked marketing vehicles to let your prospective clients know that you offer options. Talk about your offering AFAs on your website and in your other marketing literature. Getting the message out to your current and prospective clients and referral sources makes them aware that you are efficient and will not waste a client’s time and money or your own. Instead, you have devised a way to make the process as efficient and streamlined as possible for both of you. This places you above your competitors who may approach your clients to discuss how they can provide the same quality service better, faster, and less expensively.
Getting AFAs right is a worthwhile, multi-faceted, and long-term process. You need accurate time-tracking systems and reams of data. However, the more you do it, the more information you will have to help you refine the process. You can’t wait until you have it all figured out to start letting your markets know that you offer AFAs. The biggest challenge firms face, though, is overcoming attorneys’ resistance. To help clear this obstacle, foster a climate that encourages change and help lawyers see that in the long-term, adapting to a new marketplace is the only way to ensure a firm’s ongoing survival. Similar to the technical aspects of AFAs, the sooner you start “chipping the paint off of the walls,” the sooner you’ve made progress in changing the culture. And, while AFAs are not new, firms who implement them now are still at the forefront, enough so that they can claim the mantle of industry leader. At some point this will change, and those who get on board later will be viewed as laggards and find themselves left behind.
Reprinted with permission from the “May 2013” edition of the “The Recorder”© 2013 ALM media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.
