What gets measured gets done, as the old saying goes. Law firms are increasingly using the data in their practice management systems to provide more objective measures for determining partner compensation. The article below refers to the 4 P’s of compensation – Production, Procurement, Proliferation and Profitability. The emphasis on compensation is moving from revenue to profitability. Firms are focusing more on how efficiently you can turn revenues into profitability, and large practices with low margins are less desirable than smaller, more efficiently run practices.
Here’s a round-up of predictions for the legal industry in 2015 from some of the top thought leaders in the business:
A recent article by Shannon Green of Corporate Counsel magazine caught my eye regarding billing arrangements. In the article, Shannon summarizes a panel discussion on project management at a Legal Marketing Association event held recently at Latham & Watkins’ office in New York. See here.
Michael Caplan, director of operations for the office of the general counsel at Marsh & McLennan Companies Inc., said, “the biggest misunderstanding law firms have about their clients is thinking that they are first and foremost focused on reducing costs. To general counsel and CEOs…predictability is more crucial…the billable hour at companies like ours is dead.”
The rest of the article outlines the advantages of using project management to achieve the above goals for clients, and the need to budget carefully the staffing required to do the job to avoid write-offs for the law firm.
Nat Slavin, founding partner of law firm consultancy Wicker Park Group, noted that “It is mind-numbing to keep up with the different needs of clients, but you have to do it, he said, adding that when it comes to managing a project for a client,”One size fits one.”
I observe that every client has unique needs, whether it’s how they want their project managed or how they want to be billed. Some clients are looking for cost certainty and fixed fee billing, while others are happy with hourly billing if law firms communicate with them regularly and alert them if hours are projected to go beyond original estimates.
Since clients value different things, it’s necessary to find out exactly what the client values up front, whether it’s cost certainty, turnaround time, etc. Then you can construct an alternative fee agreement or hourly billing estimate that meets their unique needs. You give the clients a choice of how they can be billed, whether on a fixed fee or hourly basis, or a combination. There is no one size fits all as far as client demands go on billing arrangements.