More Cost Certainty For Law Firms = More Legal Business?

by rocketmatter-admin January 26, 2011

Lack of cost certainty has to be one of the leading reasons why we don’t use more legal services. I can’t prove it, but I’ve always suspected there is a heck of a lot of potential legal work out there that doesn’t end up on lawyer laptops solely because of the absence of a fixed price (or something close to it.)

Just this weekend an entrepreneur friend – not unlike many other entrepreneur friends– told me he’d really like access to more good legal advice (and trust me, he could use it!) but he’s just scared of a bottomless pit of bills. These people are willing to pay for legal services, but they want to know what it’s going to cost.

I know myself that one of the toughest things to hear when discussing a potential engagement is – “well, this could cost anywhere from $X1to $X2” with a cavernous gap between the two numbers, and no real analysis of what would drive the difference other than vague references to “what the other side might do”, “we don’t know what we’ll find”, and so on.

The uncertainty range is usually due to the fact that the pricing is premised on billable hours (i.e. the input), when what I’m really interested in is some type of result (i.e. the output). When we buy legal services we’re really not looking to buy time, we’re looking to buy help with a problem, a specific result or a piece of output. Most of the time I could care less if it takes my lawyer 8 hours or 80 hours:  if the objective is successfully achieved, I’m happy. (I also don’t think lawyer time is a great proxy for client value, but that discussion deserves its own post.)

In a transactional work context, the out-of-pocket cost of the lawyers is often only one small aspect of calculating our expected return associated with a particular project we’re involved in. It can be frustrating when virtually all of the other costs associated with, say, an acquisition, can be reasonably estimated, but the lawyers find it difficult to estimate their own piece. Lawyers are almost always concerned about how much time they will be investing, when the client is often more concerned with the value to be delivered. The premise that the value delivered is in direct proportion to the hours worked just isn’t true.

I can see that there’s definitely a lot of situations where a rock-solid “fixed price” arrangement would be tough to work. Complex commercial litigation, involving oodles of discovery, might be just one example. But even in that case, it seems like an experienced commercial litigator should have enough data to pretty much know what specific stages of the procedure are likely to cost, based on metrics derived from probably hundreds of prior examples. While it’s true that every situation has unique twists and turns, I’d think a lawyer with a significant volume of work under her belt should be able to extract some good data from across her entire population of cases – how much lawyer time a certain type of matter tends to take on average, what the external costs are, if any (lien searches, court filings, etc.), what her “costs” are likely to be, and so forth.    So, even if the lawyer herself wants to counts her time as the value she’s selling, with today’s billing technology and practice management software it should be fairly easy to compile her own internal metrics.  By doing so, she can offer some better cost certainty to clients while also ensuring that her own financial requirements are met.

The incentive in doing so, I’d argue, is a shot at incremental business that wouldn’t have otherwise come in absent the ability to offer cost certainty or something close to it. Yes, similar to many other service-based business that have fixed (or close to it) pricing – every individual engagement will not perfectly match estimates.  Some will go under, some over.   As that happens, and it will,  you can pivot as necessary by modifying your terms to reflect actual experiences as new cases and clients are on-boarded.

Also, I don’t think this really needs to be absolutely cut-and-dried. It can be phased in. A forward-thinking client might be very willing (eager?) to try a modified approach, where there is some cost certainty – coupled maybe with a few agreed-upon caveats where the lawyer and client agree that reasonable modifications might be necessary.   Even this is substantially better than a plain “billable hour” situation.

Ultimately the idea is simple: remove the fear of a straight, unbounded billable hour arrangement, and more incremental business may come in the door.   To that end, the more metrics the lawyer compiles, the more plausible and realistic the ability to offer cost certainty becomes.

I strongly suspect this kind of approach could incent a lot of folks who should be getting more legal advice (and many of who know they should be getting it), to get off the sideline and call their lawyer.

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