Business of Law

Law Firm Pricing Directors Suggest Alternative Fee Strategies, Call for Focus on Profit, Not Hours

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Many law firms might be surprised to find that corporate clients have better legal billing analytics than they do.

That should change, according to a new breed of law firm executives known as pricing directors. As a starting point for creating new “value”-based billing models, law firms should know how their own numbers crunch, the experts say.

Pricing directors can then help law firms develop and apply standards for offering legal fee alternatives to the traditional billable hour, Corporate Counsel reports in the second article of a two-part series.

However, because no one size fits all, standards should be flexible and a system for efficiently explaining and quickly obtaining upper management approval of alternative fee arrangements in specific cases is key.

At the same time, it may not be necessary to reinvent the wheel on a regular basis. Doug Woods, a forensic accountant who serves as Ogletree Deakins’ pricing and data analysis manager, says he tends to favor alternative fee arrangements that involve holdback arrangements rather than fee discounts. Under this approach, clients hold back a certain percentage of the bills they get, so that what amounts to a bonus fund is effectively created. Then, once the matter is resolved, a certain amount of that fund will be paid to the firm, depending on its success in satisfying goals and standards that were agreed on in advance.

Under a traditional billable hours approach, lawyers tend to focus on racking up hours to succeed in practice. But to make alternative, value-based pricing work, lawyers need to understand that outcomes such as improved client satisfaction and repeat business are what they’re paid to produce, the article’s author, Susan Hackett writes. She is a Washington, D.C., consultant who formerly served as general counsel to the Association of Corporate Counsel.

As Toby Brown, the director of strategic pricing & analytics at Akin Gump Strauss Hauer & Feld, puts it: “Change your firm’s conversation from hours and revenue, to revenue and profit. If you succeed in doing that, then everything else follows.”

Earlier coverage: “Meet the ‘Hot New Hire’ of 2012, Law Firm Pricing Directors”

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