The following post is the fourth in a six-part series on legal billing excerpted from our white paper, Houston, We Have a Billing Problem.

legal billingImagine a prospective client – say, a business – needs some assistance prosecuting a simple trademark application. If this client has made the determination that she wants to use a lawyer for help on this project (as opposed to “self-help” methods), she will likely search for qualified lawyers to work with.

Assume she’s narrowed her choice between two equally qualified lawyers, identified through a referral network and Internet research. Each has already tried to differentiate themselves by claiming “experience,” “knowledge” and “responsiveness” – which are, in reality, nothing more than table stakes in today’s environment. She gets down to the nitty-gritty and asks for an estimate on the cost of the work.

Firm A responds, in very typical fashion: “We bill $X/hour, and it usually takes about Y hours initially, but we have no way of knowing how much work it will take after that. It depends on several factors.”

Firm B responds: “We charge $Z, and your case will likely follow the following stages…”

Which law firm gets the work? We can’t be certain about that, but we can be certain that one thing all businesses hate is the prospect of receiving a big, unplanned bill without any real way to accurately budget for it. As such, the ability to quote a fixed price is likely to be perceived as a significant competitive advantage. Plain and simple, most businesspeople like knowing what something costs.

And how can Firm B offer a fixed price? How can she be such a riverboat gambler with all of the uncertainties that can arise in a matter? After all, there are a lot of factors that could impact how much work she needs to put into that trademark prosecution, and how could she be willing to comfortably bear the risk of charging her client a fixed price?

The answer is simple: Firm B is a Level Five firm. It has accumulated enough data over time, over a wide enough sample size, to know approximately what the likely cost will be to service this client, and what the associated costs and margins are likely to be. Business data gives her the ability to do this. Data like: what it takes, on average, in terms of professional time, paralegal time, travel time and costs, out of pocket expenses, contract lawyer costs (where such option is ethical and permitted).

The firm that has the best understanding of what it costs to deliver different types of legal services will have an extreme advantage in not only the day-to-day operation of their law firm, but in differentiating their service delivery methods to the market for legal services.

In short, a Level Five law firm that knows its numbers will have the ability to evaluate and, potentially capitalize, on service delivery options that other firms won’t have.

POSTS IN THE SERIES:
How Bad is Your Legal Billing Problem?
Legal Billing: The Five Levels of Success
Your Legal Billing Problem Needs to be Solved Yesterday
Legal Billing: Which Law Firm Wins the Business?
How Legal Billing Practices Can Differentiate Your Firm
7 Steps to Fixing Your Legal Billing Problem