What’s so great about value-based billing? Nothing. Or at least nothing is great about the way many use the term and apply the concept, because the “V” in value-based billing is often missing.
If you’re a law firm partner, and you use the term “value-based billing arrangement” to refer to that flat fee deal you offer clients in which you calculate the standard value of time, at standard hourly rates, based on traditional staffing models and levels of effort, assuming not quite the worst case in terms of contingencies but certainly pricing in enough cushion so that it’s extremely unlikely that your realization will be anything below 95 percent … there’s nothing great about that. Sure, your client gets billing certainty — at least until you come asking for relief when the one thing you did not factor in happens, and you point out, “Who could have predicted that?”
If you’re an in-house attorney, and you use the term “value-based billing arrangement” to refer to that flat fee deal you get when your procurement specialists select the low bidder from among RFP responses in which all information must be entered on a spreadsheet, after two rounds of reverse auctioning based on a purely hypothetical set of historic data … there’s nothing great about that. Sure, you reduced your outside counsel spend — at least until the lack of experience and company knowledge among your new team of lawyers, coupled with high turnover as the most talented are re-deployed to higher-paying client matters, starts to reflect itself in poor outcomes.
There are many other examples of so-called “value billing” that reflect, and perpetuate, a zero-sum mentality between in-house and outside counsel. Is that what value billing is about: a tug-of-war over what’s in the client’s pocketbook?
No. A real value-based relationship promises and delivers far more than just reduced spend and predictability; it also ends the chore of doing a monthly bill review. Imagine all of that, and having an outside counsel team that:
- Knows your business, and your business clients, almost as well as you do, so there is no learning curve on company priorities, facts, policies, procedures, personalities or philosophy of dispute resolution;
- Is willing to share risk with you and bet on their talent and skill — not measuring the success of the relationship based on the economics of any one matter, and stand by their deals by not come back with hands out asking for “relief” every time something unexpected happens;
- Reliably lets you know when they see something, inside or outside your company, that could be important to you or to your business clients — without billing you for it;
- Is available for your pop-fly questions unrelated to any matter they are handling and is happy to provide no-questions-asked second opinions — without billing you;
- Welcomes the opportunity to offer your in-house team training in your areas of interest — without billing you;
- Regularly seconds or loans you with needed skills or experience at all levels at or below cost, and sometimes without billing you at all;
- Does not waste your time with unsolicited pitches or marketing material you don’t want, because they know they will be considered for new matters in their areas of expertise and will be given a chance to show their value. The process of selecting from among your trusted outside counsel for new matters is simple, fast, efficient, and stress- and hype-free for all;
- Constantly looks for ways to shorten cycle times and eliminate inefficiencies, even suggesting at times to transfer certain work to other, lower cost firms to save you money so you never have to wonder whether they are trying to get to done as quickly and efficiently as possible;
- Collaborates with you on the metrics on which you are evaluated — reduced spend, improved outcomes, better communication, etc. — and is relentless in developing solutions to help you achieve them;
- Is fiercely loyal to you within their firm and treat you as their most valued client. They fight to ensure you always get the best talent and service from anyone who touches your matters, so you don’t have to worry whether you are getting the best the firm has to offer.
Sounds like nirvana? Not really, but getting there begins with understanding what is on your law firms’ “imagine” list, it may not be what you think. What has value to law firms? In no particular order: long-term relationships that offer the chance for growth; predictable cash flows and prompt payments; candid feedback; strong references to third parties; a chance to learn the client’s business well; freedom from billing harassment; being treated like a trusted advisor, not a vendor of office supplies; an inside track and fair chance to be retained for new matters or matters in new areas; the opportunity to earn a nice premium, graciously paid, in exchange for the risk of taking a bath; and ultimately, a client that appreciates that law firms are in business to make money, too, and a client that cares about its law firms’ success in achieving their business goals.
So, how do you put the “V” in value-based billing? You put the two “imagine” lists together, and have a candid conversation about the relationship. The “V” — the value — will appear.