Professional Services Accounting ARTICLE -

Value - Not Billing Alternatives - May Determine Client Satisfaction

Target Audience: Legal Professionals, Professional Service Firms, Law Firm Partners, Law Firm Accounting

There’s been a lot of talk in recent years about alternative fee arrangements (AFAs) as a solution for rising legal services costs. But a recent study suggests that most corporate clients not only don’t aggressively demand AFAs, but also don’t consider them a top priority.

Instead, what many in-house counsel want from their outside legal services is “value” for their dollar. So whether you charge by the hour or offer AFAs, you need to be able to communicate the “extras” your firm provides clients.

Perception vs. reality

A 2010 survey of in-house counsel conducted by InsideCounsel and law firm Leader & Berkon found something that will surprise many firms — and legal services clients: Despite increased discussion and awareness of AFAs, survey participants reported that less than 10% of their outside counsel spending involved such billing arrangements. What’s more, fewer than 5% of respondents used AFAs for more than half of their outside counsel budget.

What explains this apparent disconnect between the amount of discussion surrounding AFAs and their relative scarcity in the legal marketplace? Law firms, which typically are resistant to change and wary of financial risk, may not be doing enough to develop and market such arrangements. But clients have also dragged their feet. The InsideCounsel survey respondents worried about the time, money and difficulty involved in evaluating new fee arrangements, changing internal procedures and potentially switching to new legal services providers.

Their greatest concern, however, was that the quality of the work performed under an AFA would suffer. Corporate legal departments may be tightening their belts, but they worry that bargain prices may yield bargain results.

Defining value

Some firms already make AFAs available or are willing to meet or beat the bids of law firm competitors. And most firms discount services for good clients. But to address the issue of value, you need to concentrate less on the amount of fees and more on what your clients receive for them.

To that end, if you don’t already, distribute satisfaction surveys when you close matters. Ask both specific questions about the case that has closed and general ones about how the client defines value. For example, would clients be willing to spend more money on outside legal services if the bills included greater detail?    

Tailoring your message

Client satisfaction surveys are only a starting point. Be sure to call or meet in person with your best clients. Ask them how — apart from reduced fees — you can offer them greater value, and listen closely to what they say. Every client is different, and you’ll want to tailor your message to address specific needs. But the basic message to all of them should be the same: Your firm’s services are worth whatever clients pay for them.

If clients are anxious about high hourly rates, you might remind them that you don’t always charge them for services such as researching the nature of their business or training in-house legal staffers. Tell clients with sector-specific needs about your firm’s industry focus or your partners with niche experience. Or, if clients are anxious that their matter get your “best people,” you can highlight your attorneys’ credentials and explain how the work of less-seasoned associates is closely monitored for quality.

At the root

AFAs are here to stay, and firms can expect demand for alternative billing structures to increase. But the old billable hour will also likely remain popular for years to come. So the next time a client complains about fees, listen carefully and ask questions. The real issue may not be numbers on an invoice but poor communication about the value embedded in those numbers.

Find out how our expertise in professional services accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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