Alt Fees Won’t Work Without Trust, Talk and Changes in Partner Comp
Whether fixed, value-based, discounted, phased or blended, successful alternative fee arrangements require greater trust and communication with clients and a closer look at revenue tracking and partner compensation systems.
Identifying the most important values of each client when it comes to legal matters–whether it’s winning a case or monthly cash-flow predictability—also sat at the top of the list of lawyer must-dos during an ABA Techshow presentation today titled, “Yes, It’s Really Time for Value-Based Billing.”
“Know your clients’ fee sensitivities,” said speaker Toby Brown, director of pricing for Vinson & Elkins who works with firm partners and clients to development alternative fee arrangements. “That is what will drive a successful alternative arrangement.”
Client happiness and firm success also hinge on open communication before, during and after a matter.
“Don’t surprise your clients, and don’t jump over [the agreed-upon fee arrangement] even a little bit if your clients are sensitive to even a quarter of an hour,” added co-presenter Jennifer Ellis, vice president of Freedman Consulting. “In order to keep clients happy and relationships going, value-based fee arrangements need to be honored, and any changes need to be communicated.”
The best communication methods are in-person chats, or at least discussions by phone. No emails, ever, the duo stated.
“I’ve watched quite a few fee deals go completely south because some lawyers will do anything to avoid talking to clients about fees,” Brown said. “This is a big challenge for lawyers but absolutely important.”
Additional challenges for law firms are accurate, real-time and comprehensive data tracking mechanisms to monitor a wide range of statistics beyond revenue streams, including case staffing, leverage, budget-to-actual expenses and rate comparisons.
Fairly apportioning the profit to each participating attorney is also crucial to profitable arrangements and happy clients.
“Firms need to recognize the lack of comfort the involved attorneys might have with changes in accountability,” Brown said. “It’s difficult for lawyers and firms to discuss changes in compensation, but it’s important. I’ve seen partners with big books of business that aren’t very profitable to the firm.”
Related article:
ABA Journal: “Facing the Alternative: How Does a Flat Fee System Really Work?”
