We have mentioned recently many challenges that partners and leaders of commercial law firms face. As a leader, here are some of the factors that you need to consider when facing the future of law:
always be open for learning;
consider differences between the legal profession and the business of law;
get to know your competition;
reconsider your business model; and
use Legal Project Management, supported by a legal technology solution.
In this article, we are focusing on the technology aspect of the above. More specifically, your business reasons to use LegalTrek ‘s legal billing and legal project management software platform.
Before you continue, please note – this guide is particularly important for law firms that serve sophisticated commercial clients. These are usually the kinds of clients who like to be well-informed about their matter progress, legal spend status, and the delivery estimates.
If you have (or plan to have) such clients, this guide is for you. Moreover, you should read on if you are a law firm partner; law firm manager; executive; or otherwise a leader, who:
is considering adapting your law firm’s business practices – like, for example, moving more towards alternative fee arrangements and value-based pricing – to remain competitive;
otherwise feels your law firm can benefit from better team organization and improved workflow;
is now starting out, or considering starting your new commercial law firm;
feels clients deserve better quality and experience of your services, and that their legal projects need to be treated with additional care, in the new landscape of the legal industry.
Organize your legal team with Legal Project Management
What you are about to find ahead are the business practices that the LegalTrek team wholeheartedly recommends for your law firm. We have cherry-picked those practices for you, from many case studies and examples from our clients; they are in line with recommendations given by major thought-leaders in the legal industry.
Furthermore, you will see the key attributes of the LegalTrek system. You will learn how your firm and legal team can benefit from our legal billing and project management software. You will discover what it means to become an agile law firm, one that is praised by its clients for swift service delivery.
Thank you for reading.
1. An organized legal team is a strong and agile team
Every well organized team gets at least these two ingredients right – 1) they have all their work materials centralized; and 2) they have clear processes covering all (or most) situations that their team can encounter in their practice.
Before you grow your business, you need to make sure that what is mentioned above is also true for your law firm and your legal teams.
Let’s start with work materials.
1.1 Centralized information keeps your legal team focused
LegalTrek helps you with: your contacts and client base; legal matters; scheduled events; assigned tasks; projects and workflow; budget; matter status; fee arrangements; rates; reports; invoices;
A centralised database is of vital importance for every law firm. All of your data, from contacts, invoices, schedules, billings, reports, to client communication records, should be in ONE easy-to-access place. Your database is your working material, so if you optimize and share access to it, you will save lots of time at work.
It is clear that your organization needs to have access to your client information, in order to deliver the service.
Additionally, having a central access point to legal matters will help your fee earners, because they will: 1) have full access to the entire knowledge base about those matters; 2) see clearly what is the stage of the delivery; 3) be clear what is the next step for them to do in any case.
Moreover, this centralized database will also benefit office managers, partners, and/or other administrative personnel, since they can: 1) have full access to tasks completed by the fee earners; 2) see pending items, and be able to revise any interim results; 3) see the expenses and/or fees accrued during such work; 4) supervise those financial items, before issuing reports; 5) see issued invoices, closed payments, and outstanding items.
Furthermore, sharing calendars will show the partners and leaders, of your law firm, the big picture of the availability of key team members. Therefore, you will know, in an instant, who is available to assist on any incoming tasks or requests.
Finally, if you centralize the information about your legal projects, and their status, it will have huge positive effects on your workflow. Namely:
Sharp focus – all the team members will be clear about their priorities, and impending work to be dispatched;
Clarity of work – knowing the goals and milestones helps the whole team go in the same direction – towards the results;
Awareness and dependence – if team members know the scheduled workload, and know what they need to do, they will see how they depend on each other in the whole process. This is likely to boost their sense of community and motivate them to perform and help their fellow colleagues achieve goals.
1.2 Legal Project Management creates invaluable experience for your clients
LegalTrek helps you: setup your legal projects; create workflows; set and manage legal budgets; budget and price by project, stage, or task; manage legal expenses; manage work streams; and manage resources and risks.
Having a legal project management system in place will greatly improve your clients’ experience of your firm. We have written more here on the reasons why your clients need you to have legal project management in place (even if they do not ask for it).
To illustrate, simply imagine a situation in which you get a call from your client. This client has specific questions about the progress of their case. If you are able to answer your client clearly and precisely in just a few minutes, while having him on the line, this will do miracles for your reputation!
Anthony Smith stresses that “effectiveness of communications is the biggest single factor that separates best project managers from the rest”. By extension, this is also how the best legal service providers stand out as the most competitive.
“Legal Project Management techniques help you communicate better with your clients…” – Antony Smith
But let us go one step further – why wait for your client to call you in the first place?
I mentioned before, that in mature industries, one way to truly differentiate yourself is to improve the customer’s experience of your service. Of course, quality is always a given.
Legal Project Management is primarily about about understanding your clients’ needs and priorities, including their appetite for risk.
For example, if your boutique law firm serves corporate clients, they are probably not too comfortable with risky and confusing situations. And while it’s true that you can achieve the same result for your clients in a few different ways, the outcome is not the only thing your clients will value.
The experience your clients have, under your guidance, is equally important. It plays a role in whether your clients refer you for more work.
“Ideally, you wish to keep your clients in the loop with progress made, without them having to ask you…”
The way to do that is to send them periodic reports (we recommend a bi-monthly update, if a client does not prefer anything more frequent). Those reports could include (e.g.) status of their project; legal spend; remaining budget; and any open questions that they need to assist you with.
If you do so, and follow best practice project management, your clients will never wonder if there are any hidden risks. They will feel very comfortable with how you lead them. What better reason is there for them to retain your law firm next time?
1.3 Do you have a choice but to make your clients happy?
The real question here is if you have any alternative other than to give your clients a premium experience? To answer it, let us imagine a scenario where you simply refuse to comply with the best practices that I suggested above.
Let us imagine you opt not to centralize your database. You, and your legal team, would spend a great deal of your valuable time on mundane, repetitive tasks – that bring no additional value to your clients.
And you may even think this is OK, since you are still using the billable hour with your clients (if that is the case?), but this is a separate point of discussion, and I will address it below.
Matthew Burgess said that you should be wise to focus on the results of your work, rather than your inputs, when charging your clients. In other words:
“Charge for the value you create, rather than the processes that you use…” – Matthew Burgess
Alternatively, it is equally bad for you, if you use alternative fee arrangements (e.g. fixed fees) and yet have lots of inefficiencies. That is a foolproof recipe to close your law firm.
Ok, so let‘s say you’ve centralized your database, and reduced the mundane work significantly. That’s a great start! Now the question is: can you afford the luxury of NOT using legal project management?
So, let’s imagine such a situation. You have your full database organized, but when it comes to actual work and processes, you have nothing to keep them in place.
As a result, you probably haven’t a clue what needs to be done for every project, without having extensive meetings (and I am not just talking about the initial planning meeting). These are always important.
But, once you’ve made the plan, you and your team will have lots to do. And often during (even not so) complex processes, people need to communicate on their progress. This is very important, even just for the internal communication.
If you have a project plan and management practices in place, it will be easy to follow the progress, and help with deliverables. If not, you will need to have extensive report meetings, every time you wish to understand the status of work in hand.
However, linking with team members is not the only benefit of legal project management. The legal projects and process maps that you create, in the planning stage, can easily be saved and re-used in similar projects – even if only to help decide on the next steps.
Furthermore, I have already mentioned how important communication is for your clients. The best approach is to make an agreement with your clients right from the start about the frequency of your updates. Again, if you do it on a weekly, or a bi-weekly level, a one-pager will be more than enough.
It will be very easy to stick with such a reporting schedule, if you keep track of your legal projects. Otherwise, composing every report will require lots of data mining at your end, and, as a result, lots of (wo)manpower lost.
Again, this is time that does not add extra value to your clients.
And for all of you who feel old-timey email is quite enough for communicating with your clients, well:
“Legal work has evolved, but our strategy for managing it has not. Email strings have become long, convoluted and branched. An email sent to the full working group often contains information relevant to only a few and may fail to achieve the desired goal of the communication…”
2. Alternative fee arrangements are the new black
LegalTrek helps you: set your legal fees; use alternative fee arrangements; use hybrid fee arrangements; track delivery time; price per project; price per task; control legal project expenses; with budgeting and legal budget management; control and revise billing units and fees before reporting to clients;
“We see a seven year trend of compelling success enjoyed by firms that adopt alternative arrangements…” – Altman Weil 2016 Report: “Law Firms in Transition”
2.1 What are (and what aren’t) Alternative Fee Arrangements?
Alternative fee arrangements (AFAs for short) are nothing new, yet I still see some law firm partners and fee earners not really understand their true meaning. Yes, AFAs are about your agreements with clients, and the compensation structure for the services you render.
However, more often than not, this is where understanding about AFAs stops.
Alternative fee arrangements are fee structures that are not based on the time that you spend rendering a service. That being said, there are many complex fee structures that lawyers sometimes characterize as alternative fees. Furthermore, they present those as such to their clients.
However, in some of these cases, you can actually derive a price per hour from that complex fee structure. If that is possible, then you should know that what you have (been) offered IS NOT an alternative fee arrangement.
AFAs cannot IN ANY POSSIBLE WAY be reduced to an hourly rate. This is the single litmus test that sets aside alternative from hourly fees.
It’s as simple as that.
2.2 Why should you switch to AFAs?
Having terminology and definitions out of the way, some of you may wonder WHY you should switch from the billable hour to alternative fee arrangements?
Now, I gotta give this to you – it is a good question: one that requires a separate post. I will be writing on the subject soon, so make sure you follow LegalTrek Blog for more answers and insights.
In the meanwhile, let us consider the following:
2.2.1 Alternative Fee Arrangements will make you more competitive
Beth McLean, founder of Timeless Legal Network, feels that increasing competition, if anything, should be reason enough to use the non-time-based fee arrangements.
In Beth ‘s article “Dropping Billable Hours Lets Lawyers Reach Full Potential”, Beth noted:
“There are record numbers of practicing lawyers. And they now face competition from a variety of non-traditional sources – online legal do-it-yourself websites and virtual law offices leading to the commoditization of many legal services.
Some lawyers are reacting by discounting their hourly rates and working longer hours. However, that just leads to further erosion of margins, and law firms leaving money on the table.
“Ultimately, I don’t feel that lawyers will be able to effectively compete with these challenges, while using the billable hour model.” – Beth McLean
2.2.2. AFAs will encourage you to innovate (not the billable hour)
John Chisholm wrote recently on his blog that he feels the billable hour is one of the factors that slows` down innovation in law firms. Conversely, fixed prices simply urge service providers to constantly find novel ways to create value for their clients.
John illustrates this with an example:-
“…in industries that do not subscribe to the “we sell time” mantra, if someone were to come up with an idea that would mean, instead of taking 5 hours to do a task it could be done in 1 hour, they would be applauded and rewarded. But in the OldLaw world, under the billable hour model, such an idea would be ignored…” – John Chisholm
2.2.3 Done properly, AFAs will boost your law firm’s profitability
Alternative Fee Arrangements make most sense only if used properly, and in conjunction with value-based pricing.
And while I have seen (and heard) people using those two terms interchangeably, we should clearly distinguish alternative fees from the value-pricing method.
Fee Arrangement (or structure) is an end result of the negotiation and discussion with a client. Normally, after you have discovered their needs, scoped the project, and determined the price for the work (based on the value, hopefully) you set the fee structure.
Fee structure assumes you have the understanding and agreement on the price, but also on the modality and frequency of payment(s).
Value-based pricing, on the other hand, is a skill (some also call it an art) of determining the value that your client will receive from you. Matthew Burgess calls it “a journey”, and one “…with a destination we accept we will never arrive at”.
“Don’t ever feel as though you’re getting close to being perfect about value pricing, because you never actually get there…” – Matthew Burgess
That being said, if you are competent at scoping a project, you will likely set a price that is valuable for your clients and your law firm. See this article for more thoughts on what “valuable price” means in this context.
At the same time, a valuable price, paired with the appropriate (alternative) fee arrangement, will often yield more revenue than hourly rates. Combined with scalable processes, this will turn your law firm into a highly profitable system.
If what you just read was somehow not enough to make you more inclined towards value pricing and alternative fee arrangements, please note that a) some clients are requiring their law firms to use those fee-structuring methods; and b) lots of law firms have reacted and moved in such direction already.
For example, GlaxoSmithKline, the global pharmaceutical firm, publicized its progress in abolishing the traditional billable hour in its dealings with outside law firms.
Quite impressively, 84% of the work GSK assigned to law firms in 2015 was done through an alternative fee arrangement. In 2011, the number was 68%, while it was only 3% in 2008.
From 3% of alternative fee arrangements in 2008, to 84% in 2015, GSK – like other large clients – is taking charge of its own legal spend, by insisting on outside law firm compliance with alternatives to “we’ll tell you how much it costs when it’s over” approaches to legal service pricing.
So, why should you wait for your clients to push you to use AFAs? Is it not better to be proactive, and prepared properly for the change?
Many law firms already do quite a bit of work under alternative fee structures. As you can see from the chart here:
Law Firms in Transition 2016, page 103
And here:
Law Firms in Transition 2015, page 94
You really would not like being in a situation where all of your competitors had already adopted value-pricing and alternative fee arrangements. So why wouldn’t you start preparing today?
2.3 How will LegalTrek help your pricing strategy and practices?
If, after you read all of the above, you feel ready to move ahead and introduce alternative fee arrangements in your law firm daily practice, we are happy to help you.
We have the most comprehensive legal billing system for corporate law firms. Our solution caters for alternative fee arrangements, traditional fee arrangements (hourly billing model), as well as for hybrid fee structures.
Moreover, the LegalTrek billing module gets upgraded constantly , allowing you to structure your fees with clients in many different ways.
But why is this important?
Your law firm has its own brand. The way you communicate with your clients; the way you guide them to the solution; the way you craft their experience around every facet of your service (yes, including pricing, charging, and collecting your expenses and legal fees). And your software solution must support that brand.
“Your legal practice management system must underline your law firm’s identity and culture…”
By extension, your legal software must be in line with the way you bill your clients. So, it’s essential for you to have a software platform that can support all types of fee arrangements.
Hence, in addition to the traditional billable hour, in LegalTrek you can use these fee arrangements (standalone, or in combination with the billable hour):-
2.4.1 Fixed fees
Fixed fee is possibly the simplest and clearest form of alternative fee arrangements.
The same way any hybrid fee arrangement can be boiled down to a billable rate per hour, any alternative fee arrangement can be broken down to a fixed fee. Fixed fees can be attached to a certain task, event, milestone, legal matter outcome, or project stage.
Once you agree with your client on the fees, you can easily record that arrangement in LegalTrek. For example, you can define your fixed fee for the whole matter:
At the same time, you can record any additional fixed fees that you will be charging. You may find this particularly useful if you started the work for your client before defining the fee structure (our clients usually have such situations when dealing with urgent cases or requests, where they need to start working immediately).
However, this is also useful if you face a change of order and change of scope situation. If you find that your clients need something more than originally agreed, you will need to include and record any additional charges.
Finally, you may be using fixed fees to price certain tasks and/or stages in your legal projects. If that is the case, you can do the same in LegalTrek, and you can record them as you deliver your service and record the work.
If you have any questions on how you can use fixed fees in our legal billing module, feel free to get in touch with us by clicking here.
2.4.2 Success fee and Contingency fee
Success fee and Contingency fee are sometimes used interchangeably. However, both of those mark one specific arrangement – also know as the “no-win-no-fee”.
Due to its nature, the pure success / contingency fee is very convenient for clients who are not inclined to pay huge (or any) proceeds up-front, or during the development of the case. Such clients will only pay their lawyer if the case is won, and consequently, they are entitled to receive a sum of money at the end of the case.
It is clear why the contingency fee, in its pure form, is hugely popular with clients and attorneys involved with Personal injury, Family, and even Criminal defence matters.
However, contingency and success fees have their place in corporate and commercial legal practices as well (and not only when it comes to litigation). Even in transactional legal matters, clients sometimes like to additionally incentivise their law firm.
For example, clients can introduce special rewards if the law firm finishes their legal project before a certain deadline. Hence, they agree to pay a special fixed sum, on top of the agreed fees for the project.
LegalTrek also supports you if you have this arrangement with clients. You can record your success fee in LegalTrek in its absolute (monetary) value:
Or perhaps you have a litigation case, or an M&A transaction, where your work can influence the final price that your client pays (or gets paid) in the acquisition process. If your role is key in that matter, and the level of effort and dedication is likely to influence the price, and even the outcome itself, you are in a pretty good position to negotiate a success fee.
Furthermore, you may tie your success fee, in the above example, to the acquisition amount. Hence, you will then record your success fee in LegalTrek by expressing it in percentages:
Get in touch with us by clicking here, and you will see, in action, how to use success and contingency fees in our legal billing module.
2.4.3 Subscriptions (sometimes referred to as retainers)
Subscriptions are a great way to package your legal fees whenever both you and the client expect to have recurring legal work.
Essentially, a subscription arrangement means that you (i.e. a law firm) make your services available for the client every month (or some other cyclical period). The client pays you the subscription amount on each of those cycles.
It feels simple, but sometimes it can get more comprehensive.
Subscriptions are a specific group of fee arrangements. There are different ways to arrange a subscription, and this puts this fee structure in a “grey area” between alternative fees and traditional (hourly-based) fees.
I will explain the difference below in more detail.
Before that:-
Sometimes lawyers and other professionals refer to subscriptions as “retainers”. This seems to make sense, since both retainers and subscriptions are meant to secure a client some legal service. In other words, to “retain” a lawyer or law firm, should a client need any legal help.
However, there is one very subtle difference (one that we learned from our clients).
Subscriptions, on the one hand, are due every month (or other cyclical period) in exchange for the specified service / products / hours . It is a specific sum, that is the same for every period (unless there is a change of order, but that is a different story).
Retainers, however, are usually paid up-front, as a lump sum for the whole legal project (or split for certain stages of the project). Fee earners record their time and work, and the law firm draws the legal fees from the lump sum (held in a trust account usually, by a lawyer or third party).
The essential difference between the two is that, while subscriptions are fully-specified cyclical payments, retainers may not be as specific. For example, there may be an agreement about the hourly rate, but not a firm amount as with a subscription.
LegalTrek helps you record and account for both retainers and subscriptions. For the moment, let us focus on subscriptions.
I mentioned above that there are different ways to package a subscription.
On one hand, you can offer specific, well-structured legal services and products for a monthly subscription fee.
For example, let us imagine you agree to provide your client with up to five legal documents of a certain nature (e.g. compliance, etc.) for 3,500 EUR a month.
In this example, the subscription amount is not related to time spent issuing those documents. So, we can agree that this is a true alternative fee arrangement.
LegalTrek enables you to use Subscription for documents and other legal products. You have full flexibility to select the cycle period, currency and amount:
In another example, if you would like to offer a subscription package to your clients, but valid only for the number of hours agreed, you can do that too with LegalTrek.
You should be aware, though, that this is not an alternative fee arrangement. The end price can still be derived as the price per hour, while it is only being expressed as a subscription.
If you wish to do so, you can record such subscriptions with LegalTrek. You need to choose the option where you limit this arrangement to a certain number of hours:
Once you start using such an arrangement, your fee earners will still be able to record their work and time. In addition, they will relate it to the assigned subscription. This will flag our system to deduct recorded hours from the subscription limit:
When your fee earners reach the subscription time limit, they will still be in a position to record any additional work, if needed. This will be recorded separately. When ready, you can decide if you wish to invoice the excess work in a separate invoice.
Even though we support both forms of subscription, we strongly recommend you to consider the alternative fee arrangement variation. This is because, among other benefits, if you nail this model, you will actually be in a position to scale it pretty quickly.
See here how Lucent Law productized at least a part of their services.
If you want to see more on how you can use subscriptions in your practice, and how LegalTrek can help, get in touch with us by clicking here.
2.4.4 Pricing and charging per legal task or project stage
This model of pricing and charging for your legal services essentially boils down to a fixed-fee model. The only difference is that scoping (and hence pricing) is done with a focus on separate items, tasks, and/or stages of a legal project.
These deliverables (aka milestones) can be tied to specific fixed charges. If you use such a billing and pricing arrangement, you will need a system to record each of the deliverables and the budgets / amounts per milestone.
Let me show you how you can structure such a project and fee arrangement in LegalTrek.
Let us imagine the following example:-
A prospect, which is an international company, plans to open a local production facility in your home country, or a region that you are active in.
For the sake of simplicity, let us imagine that the whole project can be divided in three:- 1) establishing a local subsidiary; 2) purchasing, or leasing, land for the production facility; 3) regulatory clearance for building and operating such a facility (e.g. building permits, environmental clearances, etc.).
Now, you are getting ready to pitch to the client. You have done such projects in the past, and have the legal expertise, business acumen, and, where needed, connections with the administration.
Before meeting and pitching the prospect, you come up with the following project stages and milestones:
1. Define the project stages:
2. Estimate deadlines:
3. Define the budget for each stage:
Once you meet a client, you can guide them through your project proposal, by simply simulating the steps, and checking the stages. If you give your client a bit of your backstage insight, that will likely create more trust in you right on the start.
Once a client agrees to this overall proposal, you will need to close this deal with the necessary documents (e.g. engagement letters, PoAs, final project plan proposals).
This paperwork is a small project in its own right, so you can dedicate it a special card in your internal legal project. Or, if need be, you can have a separate board for those internal administrative tasks.
Tick the boxes as you go and complete these steps, as shown below:
Once you complete this preliminary stage, move it to the “Done” column, and proceed to the following stage.
You can keep those legal projects “clean”, so they contain only the items, tasks, and deadlines that are directly relevant to your client. Or you can also include any intermittent steps that your team needs to complete to deliver the project. The choice is yours.
For example, you can also add a column to your project that contains those items that have been invoiced and/or paid for. This way you have full clarity on both your delivery and your collection:
If AFAs are your flavor of the month, and of your clients, the LegalTrek solution fully covers your needs.
3. Billing by the hour? We can help you there as well
LegalTrek helps you: set standard and special rates; set fee-earners, their charge groups and billing positions; set your special “friendly” rates for certain clients; record time entries; record expenses; review billing units before issuing reports; review worked hours and billable hours, before invoicing;
Billing by the hour is still very widespread in the legal industry. Billable hour has a long history, and its own proponents, as well as authors who fight against it.
We also write about the drawbacks of this legal fee model. The hourly model is not well known for fostering innovation, for example. It is simply not encouraging incentives to find new, more effective ways of conducting business.
And then there are other problems, like hiring, and related HR issues. Seasoned legal professionals talk about their (bad) experiences, from the days when they used to grind hours, under the pressure of their management. Fewer and fewer aspiring lawyers want a work environment like that.
Due to the aforementioned (and many other) reasons, many law firms are now considering AFAs. The process of transformation may not be as simple, and as short, as one would like, but data suggests those proactive firms that adopt it have lots of success:
Law Firms in Transition 2016, page 105
That being said, you could still be using hourly rates for a score of reasons. For example, you may not be considering changing your practices at all. Perhaps you feel you are better off maintaining the status quo. If that is the case, this is completely fine.
On the other hand, you may be phasing out your hourly rates. You just might be moving towards fixed fees, other alternative fee arrangements, or even hybrid legal fees.
In all of the above-mentioned situations, hourly rates are obviously (still) important for your law firm. If this is the case, you can use LegalTrek’s billing module to set your rate tables for the fee earners in your law firm.
You can set your standard rates for your law office in general, or set your specific rates for some clients, and/or matters:
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