The photocopy is dying a slow death, one that’s particularly costly for law firms. In today’s digital world, most legal documents are scanned, emailed and electronically edited, then sent to local printers at attorneys’ desks or to sophisticated multifunction machines at in-house copy centers.
But cost recovery at firms has not kept pace with these electronic options, and many of these routine expenses are simply absorbed. Photocopies are still high on the list of costs charged back to clients, but in-house prints and digital work — such as scans, photo editing and graphic design — lag.
A 2012 biennial survey of United States law firms conducted by the legal consulting firm Mattern & Associates bears evidence to the dilemma. The Glen Mills, Pa.-based consultancy polled 64 firms: one-third under 100 lawyers, 18 percent with between 250 and 499 attorneys, the rest in the middle.
Mattern & Associates found that cost recovery rates for prints have been nearly halved since 2010, with firms on average charging just 8 cents for each black-and-white page, down from 15 cents. For color prints they charged 30 cents, compared with 68 cents in 2010.
By comparison, firms typically recovered 16 cents for each black-and-white copy — about even with 2010 numbers — and 61 cents for each color copy, down from 73 cents in the prior survey. The discrepancy between costs recouped for photocopies versus printing is further underscored by a growing imbalance in volume. Print quantities for the average legal engagement have risen to roughly three times that of copies, says principal Robert Mattern, while the number of scans is the same as copies.
On average, law firms realized 49 percent of black-and-white copy costs, ahead of what they got back for telephone charges and legal research, according to the study. While the percentage of firms recovering prints and scans has increased over 2010 levels, the net realization of costs has remained the same or decreased. Some 48 percent of firms recovered costs for black-and-white prints, while 47 percent did so for color. Black-and-white scans were recovered at the rate of 37 percent, and color at just 23 percent.
To be sure, the unstable economy has made it harder to pass along “soft” costs to budget-conscious clients. “[Firms] have to get on the print-and-scan bandwagon or they’re not going to be able to cost justify,” he says. “But a lot of the attorneys are saying, ‘Hey, I can’t justify this charge,’” Mattern notes.
Fred Weber, director of administration for Chicago-based Chapman and Cutler, says his firm typically gets back just 5 cents for every 12 cents billed for a black-and-white print. Partners have the latitude to write off any charges they consider extraneous, he notes.
“It’s not so much being able to charge for the matter; a lot of times clients are setting limits on those charges,” says Weber. “It gets written off. It goes against the profitability of the job.”
But recovered or not, the firm tracks costs. “From our standpoint, from the management standpoint, it’s important for us to know what our total costs are for servicing a client. So whether or not a client limits that, or a partner decides that they don’t want to charge for it, it’s still important to be able to capture those costs so that you know what those costs are.”
Prospective clients of a national law firm based on the West Coast are increasingly setting limits at the proposal stage, says the firm’s chief financial officer, who declined to be named because of the competitive nature of accounting information.
“It is a buyer’s market,” he says. “They’re in a better position to dictate what they will pay for and what they won’t pay for. We’re seeing more and more companies saying, ‘Here are my requirements. We will not pay for this, we will not pay for that,’” says the CFO. Add to this the difficulty of tracking scans and multiple iterations of sophisticated changes to electronic documents, which often lack a tangible paper trail.
“I think there’s this perception that scanning is free,” says Greg Gies, senior manager of industry and product marketing for Nuance Communications, which provides document-imaging software for law offices. “It’s not consuming resources that (copy) fees were typically reflecting, such as paper, toner, click charges on the devices, and so on.”
To make up for losses, more law firms are considering pulling back from soft-cost recovery billing entirely and pushing these expenses through with hourly rate increases or the addition of a fixed overall percentage on top of total legal costs, observes Mattern.
“We’re having such a struggle with it,” says the director of office services for a national law firm based in Houston, who also declined to be named due to the sensitive nature of the topic. Copy volumes in the firm’s main office have fallen to about 300,000 a month from several million in recent years, while prints are up to about a million.
“Our people have said scanning is the new thing, printing is the new thing, and that’s just the cost of doing business right now,” says the director, whose firm doesn’t bill for a good portion of prints and has “very, very low” recovery for scans.
He is tracking those expenses, as well as related costs such as time spent creating sophisticated visual presentations and DVDs, which require skilled design personnel but are billed at nominal rates. The director eventually plans to recommend a modified cost recovery system.
Susan Hackett, former senior vice president of the Association of Corporate Counsel, stresses that traditional methods of billing for these charges are becoming outdated.
“(Clients) are very frustrated with cost-plus services. They just want to know what the actual cost is,” says Hackett, who now consults to law firms of various sizes. “They don’t expect to pay a portion of the rent; they’re assuming that’s part of the overhead worked in.”
That is the mindset in the legal department at San Jose, Calif.-based Internet systems giant Cisco Systems. The company avoids paying hourly rates, purchasing only legal services with a total project cost.
“What we focus on with the law firm is to identify the expected outcome,” says Steven Harmon, Cisco’s director of legal services. “I don’t want to be involved with decisions that are made in the kitchen — the degree to which they use electronic scanning of documents versus photocopying of documents. All of that is analogous to how many prep cooks the chef chooses to use. That’s the law firm’s business.”
Despite such shifts in clients’ billing expectations, only four firms with more than 250 lawyers had embraced a change in cost recovery practices, the Mattern survey reports.
One way to make the costs of electronic documentation more palatable to clients is by attaching a third-party invoice, experts suggest. The many law firms that already outsource oversight of their internal copy centers and staff to outside vendors are already positioned for a transition from soft-cost billing to hard-cost.
Mattern suggests they consider taking the process a step further by farming out these services to retail production vendors such as FedEx Office (née Kinko’s), which could lease space within their law offices.
However it’s done, finding the means to incorporate expenses for prints, scans and electronic documentation services into the overall billing picture can reap significant benefits for a firm’s bottom line.
Charging for just 60 percent of the total use of each large multifunction printer can bring in an additional $5,000 on average each month, according to Nuance, which published that statistic in a white paper released by the International Law Technology Association in April 2011.
Says the Houston-based law office director: “That’s revenue going out the door.” •