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4. If you aren’t the only person in the market offering your indispensable service, or if you haven’t improved what you’re offering (better and faster results, for instance), then your requested rate increase might just be the final straw that convinces a borderline-satisfied client to take the painful and time-consuming step of replacing you—especially if other firms in the client’s portfolio (who’d love to take your work away) aren’t engaged in such tone-deaf activities. The fact that clients continue to pay their bills and retain you is not necessarily a sign of satisfaction. Does your gut not tell you that—for many of your clients—if something better came along, your clients would take it?
5. You just don’t inform clients that you’re raising rates via a letter—hard copy or email. I don’t care about the retainer letter “written notice” provisions: when a client of 13 years—who has about 10 special deals for pricing different matters with you, as well as relationships with three of your partners and 37 different timekeepers—gets a letter that says “as of January 1, 2013, our standard rates will go up 10 percent,” he is not only unsure of what it is that that means for his teams, special deals and blended rates; he’s teed off. You’ve just brushed off everything he’s negotiated with you over time by fiat. And if you were planning on calling a few days later to assure him his rates won’t go up because he’s special, he’s even more mad you sent him that letter in an effort to inflate his prices to give the illusion that you’re lowering them.
Bottom line: if you’re unwilling to make the case for a rate increase in person, then you shouldn’t do it at all, or at least be thinking about why even you are embarrassed to have this conversation. If you’d like to propose increasing what your clients pay you, you should be talking about it in detail and in relation to the value of the work, not in relation to rates.
Is there a Better Path to Firm Profitability and Client Satisfaction?
Yes, but it’s not easy. And it requires both the client and the firm to sit down and talk to each other, hammering out a solution that aligns the interests of the firm and the client, rather than hammering on each other.
If you want some examples of how it’s being done by other firms and clients, take a look at the ACC Value Challenge pages, which offer open resources detailing successful practices, tools for you to use in getting the conversation started and progressing, and metrics that can help you define and target success.
It is not the responsibility of clients to re-invent their firms, but it is the client’s responsibility to demand more from their firms than a rate increase letter, and reward only those firms that learn to profit from doing their work by delivering improved value.
In consultation with clients, firms need to learn how to profit from efficiency: better staffing, process, pricing, and lowered cost of service, rather than profiting solely from raising rates and hourly billing requirements. In today’s world, firms make more money by either doing something so distinctive that there is no alternative service provider to be found, discovering something new and inventing it, or figuring out how to serve customers better for less money; 99.5 percent of firms will never be able to leverage the first two options, and firms that are left to the third have to understand that they won’t make more money by telling clients that the firm is raising its rates for the same old inefficient service.
The value of what a law firm offers is not just the sum of the hours they spent doing it—it must be based on its value to the client, rather than just its value to the individual lawyers who did the work. And rates alone are not an accurate indicator, nor should they be the lead negotiating tactic for clients trying to assess a firm’s continuing value. Indeed, neither high nor low rates accurately reward firms for what it is that they do best and most efficiently. That kind of pricing must be based on value—see, e.g., my previous set of articles in Corporate Counsel on law firm pricing directors and initiatives.
If those of you in law firm leadership truly feel that you should be paid more for what you do, then talk to your clients about the distinctive value of what you offer, or the market value of what it is that they need to have done. Don’t talk to them about the high cost of an hour of your time, as if every hour you spend has the same increased value to a client. And remember when you talk to them: clients aren’t chasing “cheap” service; they want value and cost control.
A Word to Clients About their Role in Perpetrating this Annual Nonsense
Clients: Why are you expending even one erg of energy responding to rate increase requests—positively or negatively? Why do you need to send missives to your outside firms reminding them that you won’t entertain any hourly rate increases, if your actual goal is to get your firms to focus on lowering all-in cost while improving the efficiency of their service delivery? You’re perpetuating dysfunctional behaviors by continuing to entertain this conversation.
Please spend your time and energy this year researching, scoping, and negotiating the all-in cost or price ceilings you will set to reflect the value of each matter in your portfolio. These prices should be based on what the work is worth to you as the client (rather than to the firm); if your firms are not well-positioned to provide the work as you value it, remember that there are many possible and more plausible suppliers in today's market, all of whom deploy quality workers or lawyers. Define what you value in a more tangible way so that your firms can provide exactly what you expect them to deliver, on-time and on-budget, and in accordance with an agreed-upon scope of work, result goals, metrics, and project management plans.
If you do that, you will be on the road to a place where you don’t need to care about hours or rates, even if the firms that you wish to retain continue to rely on them internally—you’ll get the predictability of budget and quality services you want, without the shell game negotiations. And you’ll relegate the issue of the proper rates for hourly segments of a lawyer’s time to the more modest role it should play—as an internal unit of measurement of the productivity of a lawyer by the law firm in its accounting practices.
So clients, what would you rather do with your time spent with outside counsel this holiday season? Lock antlers over rate increases with the guarantee that regardless of whether you "win" or "lose," you’ll have no control over the all-in cost of your services for 2013? Or think about fixing what's so obviously broken?
Throw away the fruitcake practices of the past. This holiday season, give yourself and your client the gift that keeps giving, by moving beyond the “rates” conversation to invest your firms in providing what you value, determining what the work is worth to you, and scoping the work and process you’re willing to pay your firms to deliver: on budget and aligned with your desired results.
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Knowledge Insider
This is the first article I've read by Susan, and it wasn't so much the fee increase that was so blatant, perhaps because I spent over a decade watching the chaos ensue in every case I ever worked on, it was astounding. Imagine...you have in-house counsel, in-house IT, outside counsel, outside litigation support, eDiscovery Vendors, Hosting Vendors, potentially auditors, opposing counsel...let's not forget their IT, and their vendors- it's a freaking Circus and everyone has a favorite vendor, everyone thinks they understand technology, and everyone wants to give their "friend" i.e. their favorite vendor the work- then you have me, the expert, who knows what technology will work, can't work, won't scale, is to small for the case, won't work for native review, vendors that can't process lotus notes, have limited capacity and yet I can't get a decision made because the partners defer to their IT or associates, the client (in-house counsel) defers to the partner, the vendors go around me, the IT staff assures them, they have the partners ear,,,, and hundreds of hours get wasted in this process- in every firm- on every case- without fail!! AND THAT'S WHERE THE MILLIONS AND MILLIONS OF DOLLARS IN EXCESS HOURS COME FROM- and there is not a single HONEST vendor, consultant, or litigation support staff member who had an honest bone in their body that would tell you otherwise. The only way to avoid this is with direct PARTNER ENGAGEMENT; where the claim hits the partners desk, and he calls in a consultant and I mean an expert, not Deloitte, not Navigant, not Huron, consultants who've been on the other side, the partner empowers them, or he works directly with the vendors and makes the selection him or herself and once they're hired then litigation support manages the technology. In 13 years this happened twice. Once at Debevoise for Tyco and once at Cadwalader for Enron. Both cases the Partners worked directly with me; involved IT when necessary, but it was clear throughout the process they were making the decision and they were evaluating the outside providers. It's a simple process, that actually makes the partner feel superbly about updating his client more frequently!
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The Lawyer WIth Perspective
Ah yes, another article bashing outside counsel about fees. How tiresome. At least, Ms. Hackett acknowledges that clients have a role in how fees increase .
A few questions:
Why do lawyers seem to be the only profession that does this? And don't tell me that it is because we are the only overpriced service provider (See consultants) or the only ones that increase rates.
What is it to Ms. Hackett that some clients, in fact the overwhelming majority of them pay the increased rates, other than to see her name in print? If X company pays them, isn't it up to them? Or does Ms. Hackett think she knows better for everyone? Maybe she should ask why so few clients don't do something about it. Now that would be an original article. Maybe they feel that their outside lawyers's work justify their fees.
Why do people like Ms. Hackett bring up the fungible point only when fees are discussed, but not at 5pm on a Friday before a long weekend when there is a time crunch to get stuff done or one of their executives has messed something up and they need help sorting it out?
Lastly, it is not particularly brave to take this stance, hence my amusement at her self-righteousness. (Note: This is a business issue, NOT a moral issue.)
I used to find the dynamic amusing, but now I find the cycle tiresome. Writers like Ms. Hackett write these articles. Some of the in-house lawyers chime in with how right she is. Some outside law firms agree so they can get the work from in-house lawyers like Ms. Hackett used to be. (Whether they follow through with all of this is separate dynamic.) "This will now begin to change !" is the battlecry
The outside lawyers bill at the hourly rate, and most clients pay it, which starts the cycle again. Sound familiar?
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The Last Honest Lawyer
Susan:
Rebel against the fruitcake! It's about time. Excellent article and guidance to clients. While all of this makes perfect sense in theory, in practice it is a full-time job for at least one person or team. So clients, take Susan's advice and hire and spend your money on a dedicated Chief Legal Officer (or consultant) whose sole job is to implement and control efficient win-win legal services for your company. The ROI will allow for days of wine and roses rather than more stale fruitcake.
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David
Your article gave law firms more credit than they deserve. I have been general counsel for more than 20 years and I can count on one hand the number of letters I have received from law firms, even after asking for such letters, actually informing me that rates were going to be increased. My experience is that law firms raise their rates without even the courtesy of a letter or a call informing me that they intend to raise my rates.
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