It’s no secret that clients are fed up with the billable hour model. There is no ignoring that a new path must be forged to be successful in today’s new market. Smart attorneys, however, will not opt for the “easy” road and succumb to the increasing pressure to offer rate discounts. Let your competitors be the ones who incur lower realization and reduced profits in the inevitable “race to the bottom.”
The majority of quality clients really aren’t looking for “discounts” anyway, but instead, are seeking value and fair pricing. I recently came across a very illuminating Forbes article, “Nothing Is More Expensive Than A Cheap Lawyer.” The author, Amy Rees Anderson, an entrepreneur, reflects upon her evolution to choosing and using the right lawyer(s):
The only regrets I have ever had when it came to legal bills and lawyers was either not spending enough money to hire the good ones, or the times I thought I was saving money by hiring the cheap ones, . . . but never forget that nothing will be more expensive to your company than hiring cheap lawyers, and nothing will be more painful than hiring the wrong ones.
There is a huge demand out there for attorneys who will actually listen and provide what clients like Ms. Anderson are clamoring for. Real opportunity awaits those attorneys who can successfully respond to these unmet desires. What better way to understand your clients’ needs than to look at the attorney-client relationship from their perspective?
Along those lines, here is some of the practical advice that I regularly give to clients on how to choose the right lawyer. Realize that their number one concern is to avoid the dreaded double-edged sword of: (1) huge and unnecessary legal bills, and/or (2) exposing themselves and/or their company to unacceptable risk and liability. Once you better understand their thinking, you can offer them new pricing models that better meet everyone’s goals and expectations.
Without further adieu, here is what I tell my clients:
- Remember who is the boss. This is the most obvious, but also the one that most clients seem to lose sight of. This is your problem and yours alone. Do not hand over the keys (or your wallet) to your attorney(s) until they have earned your trust. The unchecked billable hour is not your friend. It can do more harm to your bank account than a horrific stock market crash. I have personally seen far too many clients go through bankruptcy because of blindly trusting their attorney to control the crucial factor in the Time x Rate = Cost equation. It is the client’s responsibility to set the limits on the all-important time factor. I’d rather pay a great attorney $2,000 an hour to solve a problem in 1 hour, than pay an inexperienced attorney a $100 an hour to bumble around for 50 hours. Make sure that prior to signing on the dotted line, you fully communicate what your objectives and desired outcomes are, and that the attorney understands this and can respond with a plan of attack that makes complete sense to you.
- Require a hard budget. Don’t prove PT Barnum right by accepting the infamous lawyer standby that the law is simply too unpredictable to provide anything but a vague estimate. Any lawyer worth their salt and with enough experience in the matter at hand (and you shouldn’t be talking to them if they aren’t experienced in the area) can and should have a very good idea of what any matter will cost, or could cost. If they don’t, I just saved you a boatload of money, because you would have been a victim of the runaway time factor discussed above. Keep looking until someone provides you a hard budget, or better yet, an up front fixed price.
- Reward good results. Wait? Did you just say that there are better options out there besides the frightful billable hour? Yes I did, and it’s called value pricing. Value pricing is like a garlic-infused wooden stake to the billable hour. It’s a poorly guarded secret that the billable hour model wrongly incentivizes attorneys to be inefficient and drag out matters, thereby increasing the dreaded time factor so as to result in higher fees. Smart clients ensure that their fee agreement instead rewards their attorney for good results, thereby aligning the interests of the client and the attorney. Example: Estimated settlement value of case is $100,000. Cost to settle on eve of trial is deemed to be $100,000. If attorney can settle case in early mediation for $100,000 they receive a $25,000 bonus. Attorney settles case early, but receives same profit that they would have if the case settled on the eve of trial. Client gets results and saves substantial attorney fees. Win-Win.
- Draft a client-friendly retention agreement. If you’ve taken the above steps, you are already well on your way to getting a far more client-friendly attorney-client relationship. However, now is not the time to let all your hard, up front work, slip away. Make sure everything you have discussed is included in clear language in the fee agreement. Remember again that this is your problem and that any deviation from the agreed upon budget needs to be satisfactorily explained to, and approved, by you, the client. Treat your fee agreement as carefully as you would treat any other high dollar contract that you enter into.
Okay, time to switch back to your attorney hat. Clients are fed up with the billable hour. Don’t offer them “alternative fee arrangements” that are really just the billable hour in drag. Do your homework, understand and learn about their problem and desired outcome, and structure a pricing agreement that incentivizes and aligns your interests with theirs. Finally, deliver and reap the well-earned rewards. Win-Win.
Mike Ayotte is a graduate of the University of California, Hastings College of the Law. After working as an associate at a well-known Newport Beach law firm (where he witnessed first hand the dangers of the “billable hour”), Mike established his own firm specializing in complex employment discrimination litigation and attorney-client fee disputes. Mike is the founder of Client First Legal Solutions, a much-needed resource for those individuals and companies who incur or will incur substantial legal fees.