When it comes to billing, it’s time to get creative.
Midsize and small firms, as well as solo practitioners in a wide range of practice areas, including patent law, animal law, business law and bankruptcy, are responding to the tanking economy by doing everything from adopting flat rates and packaging legal services to bartering their work in limited situations.
Some firms are also charging clients less for e-mail advice than telephone advice, or teaming with software companies to develop programs that generate low-cost pro se documents tailored to the client’s situation.
This year, Thav, Gross, Steinway & Bennett, a Bingham Farms, Mich., business law and litigation and consumer bankruptcy firm, is basing fees for bankruptcy and related work on what the customer can afford, said shareholder David Einstandig.
“A reasonable fee is a fluid concept that depends upon the reality of a client’s situation,” Einstandig said.
“If we sit here and do nothing, then our business will decrease and our business will fail,” Einstandig said. “We believe that there’s a vast majority of potential clients out there that need assistance and that have a reasonable ability to compensate the legal community.”
Instead of only charging the firm’s hourly rates, which range from $225 to $325, the 12-attorney Thav Gross has recently been creating financial crisis plans for individuals and small-business owners for a flat fee of $500 to $5,000 depending on the legal issues and the client’s resources, he said. The rates take into account whether an individual has been laid off, for example, or a small-business owner’s company is scraping by, he said.
Executing the client’s financial plan, which could include loan modification, negotiating with creditors and tax authorities and possibly bankruptcy, involves other fees, but Thav Gross realizes that signing up clients is “no longer a take it or leave it situation” for the client, Einstandig said.
Animal Law Attorneys in Tampa, Fla., took a similar view when it cut hourly billing rates from $150 to $120 nine months ago, after multiple clients expressed concerns about affording the estimated fees for their case, said of counsel and firm founder Jennifer Dietz.Around the same time, the two-attorney firm began taking contingency cases for the first time and cut its retainer from the $3,000 to $4,000 range to $750 to $1,000, Dietz said.
“We knew it needed to be done because people were unable to pay the retainer, and they were saying right up-front, ‘we’ll never be able to pay our bill,’ ” Dietz said.
Solo patent attorney Tracy P. Jong of Rochester, N.Y., said she’s offering select discounts to long-term general practice clients and newer patent clients.
She also agreed when local business owners asked her to join an established Internet-based bartering network. The network lets participants convert their goods and services into “trading dollars” that work like cash at other member businesses.
With one client, Jong exchanged some legal work for professional photographs. “I’m doing this because I’m hoping it’s a long-term relationship,” she said.
Dustin Cole, a business coach for lawyers whose clients range from solo practitioners to law firms with up to 80 attorneys, said small-firm lawyers need to offer billing flexibility and watch their own receivables “vastly more closely” to proactively determine if they need to offer alternative billing arrangements, including discounts.
“It’s knowing where the client is and being willing in advance to provide them some special consideration rather than having to argue at the end [of a matter],” said Cole, who is also president of Longwood, Fla.-based Attorneys Master Class. Cole said he’s hearing that some law firms’ historically “great clients” are suddenly stretching out payments and disputing bills. “Many solid clients are no longer solid,” Cole said. “You have to check much closer into the relationship [with them], both the working and financial.”
While smaller firms are open to discounts, law firms slightly up the food chain are freezing rates. Last year and early this year, a wave of midsize and boutique firms in the 30- to 80-lawyer range announced 2009 billing rate freezes, including Denver-based Fairfield and Woods; New York’s Ingram Yuzek Gainen Carroll & Bertolotti; Chicago’s Levenfeld Pearlstein; and Hartford, Conn.-based Pepe & Hazard.
Business law firms across the country are also adjusting prices, from New York-based venture law boutique MasurLaw, to Las Vegas-based small business advisory firm Lubbers & Borg. Southern business law firms, including Greensboro, N.C.-based boutique Connors & Sinozich and Atlanta’s Gardner Groff Greenwald & Villanueva, an intellectual property firm, are also trimming rates.
Flat rates for startups
In February, six-lawyer MasurLaw, which specializes in helping technology and entertainment companies, rolled out a menu of discounted flat rates for early-stage companies, ranging from $500 for entity formation to $2,500 for corporate documents.
Startup companies need a definite budget and reasonable costs to get venture capital funding, said associate counsel David J. Mazur, who specializes in copyright, new media and corporate transactional law. “Hopefully the right companies that are using our service would be able to get things off the ground easier because of the way we’ve structured this,” Mazur said.
Across the country, the two-attorney Lubbers & Borg started packaging legal services because clients are cutting their budgets, said attorney Brooke Borg.
The firm is now offering $300 to review an existing business plan and $500 to create a new business plan, which works out to about 50% off hourly rates in each case, Borg said.
“One of the dangers is that a lot of clients are cutting their legal budgets,” Borg said. “We’ve tried to work with clients to say, ‘What can we do to help you?’ “
Last summer, Connors & Sinozich started offering clients the choice between fixed rates, the traditional hourly rate or a blended rate. It’s also offering discounts to clients when it’s appropriate, said partner Paula A. Sinozich. Last fall, the company discounted its rates for a promising startup company, she said.
“When we looked at a business we were willing to bet on, we didn’t mind doing that,” Sinozich said. “We’re in the business to make money and we have families to feed, [but] there’s this level of ‘I have to be careful how I charge my clients so that when we get to the other side of the economic downturn I have clients to charge.’ “
Gardner Groff’s Fortune 500 clients are at the other end of the business spectrum, but the 11-lawyer firm is feeling similar rate pressure. In January, the firm shaved a few hundred dollars from its $5,500 to $9,500 fee for writing patent applications and cut a range of flat fees for patent work by 10% to 12%, said founder and shareholder Art Gardner.
The firm’s shareholders agreed on the plan last fall because they believed that the deteriorating economy would curtail corporate legal budgets for 2009, Gardner said. “We thought, and we were right, that going into 2009 . . . our clients were going to be facing a time of smaller legal budgets, not larger,” Gardner said.
Firms are also experimenting with technology to retain profit levels amid rate cuts. Animal Law charges clients less for e-mail advice than telephone advice, Dietz said. The firm bills one-tenth of an hour, or six minutes, to answer a client e-mail of any length, Dietz said. In comparison, clients are billed for the actual amount of time telephone calls take, starting at one-fifth of an hour, or 12 minutes, even for shorter calls, she said. “We get so many calls, because we’re kind of a touchy-feely [practice area],” Dietz said.
At family law and education law boutique Rice Law in Wilmington, N.C., the average contested child custody case runs $8,000, but the firm realized last year that it needed another option for cash-strapped potential clients, said managing member Mark Spencer Williams.
Last month, the two-lawyer Rice Law began a low-cost service for pro se litigants it developed with a software firm, Williams said. The software allows the firm to unbundle document preparation from the rest of legal services and create tailored complaints and other court filings for clients based on their answers to a series of questions, Williams said.
The bottom line is that customers can now buy legal documents to run their pro se child custody case for considerably less than $1,000, Williams said.
The technology project was part of the firm’s long-range plan, but Rice Law accelerated it when the economy turned sour, Williams said. As the recession deepened, prospective clients began to say they would continue to live together “even though they couldn’t stand each other” because they couldn’t afford the legal fees for a divorce or child custody case, Williams said.
“It was a wake-up call to us that we needed to adapt our legal services to what our clients felt that could afford,” Williams said. “In the past, we only knew how to do anything one way, the Ritz-Carlton way.”