Law firm growth has many faces. For some law firms it means diversifying to provide more full service to through organic growth or through merging with a specialty law firm. The advantage of this type of growth is the ability to offer existing legal clients additional services and more opportunity to obtain new clients with [...]
Law firm growth has many faces. For some law firms it means diversifying to provide more full service to through organic growth or through merging with a specialty law firm. The advantage of this type of growth is the ability to offer existing legal clients additional services and more opportunity to obtain new clients with a broader offering of legal services. And long gone are the days of just increasing your law firm billing rates to make more money. If you don’t have a meaningful differentiator from the law firm down the street, you are doomed with a price war, and who wants to win based on price and not quality of service? What stops your client for going to another cheaper law firm when they need more legal services? Other growth is accomplished through deep analysis of legal services you offer today and move more billing to alternative fee arrangements (AFA). AFA’s are more than just flat, fixed, or contingency fee arrangements.
The Future of AFA’s
According to the ALM and LexisNexis Fee Arrangement Survey conducted earlier this year, managing partners of law firms told us why they consider using AFAs.
- Client Satisfaction
- Game Changer – align firm with client and risk sharing
- Firm Profitability
- Increase Client Value
- Be more competitive
- Made them be more efficient
Why You Should Care
Just like your clients, law firms are seeking for more predictive revenue and expense streams. Knowing what the cost of legal services is for a specific scope of work provides comfort and satisfaction to your clients. AFA’s are not all or nothing. Client negotiations for legal services now include some amount of sharing risk. In other words, if the law firm can obtain a certain success i.e. settling the case vs. going to trial, it could mean more money in the pocket of the law firm. If for some reason the firm loses a case, the client agrees to pay for costs incurred to a certain dollar value. Firm profitability can improve if you are good at what you do and become extremely efficient at getting it done timely. A fixed fee or partial fixed fee for work that you are efficient at can make you more profitable. It also adds to increased client satisfaction knowing they are not being nickeled and dimed for every conversation or email that occurs. This also helps you compete and makes you different than other law firms who are not considering implementing AFA’s. Beware of the AFA myth. Some think that because you are charging in this manner, there is no need to record your time worked. That is not true. It is critical to ensure you and others are effectively using time. Efficiency is often accomplished by reviewing the internal processes and approval protocols to see where there is duplication of effort or to find areas that can be maximized by the use of technology.
Tom Quindlen the president and CEO of GE Capital provides a great list of five items when in a growth mode. These have been slightly modified to fit law firm growth and they are:
1) Effective cash flow
3) Strong management
4) Thinking from the client viewpoint
5) Exceptional employees.
In the end, there isn’t one recipe that fits all law firms when it comes to growth. Practice area, existing law firm talent – both lawyers and non-lawyers, having a strong leader with a vision who can execute on an idea, thinking about your practice from your client’s view point, developing innovative ways to deliver legal services, utilizing technology to make you more competitive and thinking about your firm like a business in addition to legal practice are some of the ingredients needed for successful growth.