Watch Your Time Like Your Clients Do
Next time you're chit-chatting with a client over the phone, head on over to Lawyer Clock and watch how fast your "burning" your client's cash -- they certainly are.
Cognitive Dissonance and the Low-Cost Lawyer
This interesting Wired Magazine piece, titled Why We Love Our Dentists, explores the unique relationship between price paid and perceived value. According to a recent study, two dentists will reach the same conclusion when looking at an identical x-ray only about half the time. Yet despite the fact that dentists are so frequently wrong (they can't both be right, can they?), people love their dentists more than any of their other medical providers.
The reason, according to the article, is due to cognitive dissonance, "the human tendency to react to conflicting evidence by doubling-down on our initial belief." The study's author Dan Ariely attributes our irrational love of dentists to the pain they inflict:
I think all of this pain actually causes cognitive dissonance and cause higher loyalty to your dentist. Because who wants to go through this pain and say, I’m not sure if I did it for the right reason. I’m not sure this is the right guy. You basically want to convince yourself that you’re doing it for the right reason.
The article has a few more examples of irrational behavior influenced by perceived value. Consider this study:
[R]esearchers supplied people with Sobe Adrenaline Rush, an “energy” drink that was supposed to make them feel more alert and energetic. (The drink contained a potent brew of sugar and caffeine which, the bottle promised, would impart “superior functionality”). Some participants paid full price for the drinks, while others were offered a discount. The participants were then asked to solve a series of word puzzles. [T]the people who paid discounted prices consistently solved about thirty percent fewer puzzles than the people who paid full price for the drinks. The subjects were convinced that the stuff on sale was much less potent, even though all the drinks were identical.
What does this mean for lawyers? Know that your clients hold deep-set beliefs that the value of your advice is tied (even if subconsciously) to the price they pay for it. In other words, if you're the lawyer offering the lowest prices on your services, understand that your clients believe your advice is less valuable than the same advice offered by your higher-priced peers.
An unanswered question: do lawyers offering that low-cost advice believe they're less competent than their higher-priced peers? Just as their clients expect to get what they pay for, do lawyers expect to deliver what they charge for? What do you think?
Communicating Value and Price
I've been a big fan of Merlin Mann for several years now. As I was checking out his website yesterday, I found his pricing page cheekily titled: Do You Charge Money to Do Things? Here's how Merlin describes his pricing scheme:
For most all of my speaking, consulting, and advisory work, yes: I do charge a fee, plus expenses. And, candidly, I charge kind of a lot.... I learned a long time ago to only work for or with people with whom you have mutual admiration and respect—and who already think you’re valuable and great at what you do. In my experience, the folks who expect you to make a case for your own value make for terrible clients. They may be good negotiators and nice people, but working for them is a gut-wrenching travesty. And I don’t do travesties.
With all that said, I do a fair amount of (private, unpublicized, non-ribbon-based) work with non-profits and other deserving groups. And, no, I normally do not charge for this work. So, If you’re working for a good cause or represent an organization that’s trying to do something you know I care a lot about, please ask me. No promises, but I’ll do what I can with what I have.
So, yep. “Expensive” or “Free.” It’s a fee schedule that works.
I think it would work well on a firm website, and provides an important reminder every lawyer should have on their desk: "The folks who expect you to make a case for your own value make for terrible clients."
Profit by Giving Your Fees Away
I saw this little blurb on the Church Marketing Sucks blog:
WaterFront Community Church says, “We’re going to give away 100% of our offering to help build and beautify our community.”
What would the impact be if your firm did the same thing, and donated one day's fees a year (or month) to make your community better?
I think it is a great idea -- and could be even better if combined with a contest (like Pepsi's Refresh Project) that sought entries from school children or community groups. What do you think?
How Much Should Legal Fees Be?
Lawyers, do you think clients would use a service that describes itself as follows:
We are an independent, unbiased resource designed to deliver legal fee and price transparency and the expert information legal clients need. Our team of expert lawyers has helped us comb through a mountain of flat fee and billable time data to ensure you have the information you need when it's time to hire a lawyer.
Well, that service doesn't exist for legal clients just yet (as far as I know), but it does for people with car trouble. It is called RepairPal, and it gives people pricing advice (including printed estimates) for various auto service repairs. Here's how it works:
RepairPal takes the mystery out of car repairs with a simple tool thatwill tell you the average price you should be paying for a repair inyour zip code. You just pop in a few details about your repair andcar, and it will do the rest. It breaks down the estimated repair costin a few ways, showing you the range to expect depending on whether yougo through a dealer or independent repair shop, the cost of labor andparts, plus the parts usually needed and how much they cost. Theresult? You can feel better about making an informed repair decision,and you don’t have to scramble to get your friend the “car expert” onthe phone to ask a dozen questions.
Imagine a world where your clients' expectations of the cost of your services is driven less by the facts of their case and more by an "estimate" they got from the internet. A brave new world is coming. Are you ready for it?
Measure Time the Way Your Clients Do
Just a quick thought: Are you measuring time the way your clients do?
Are you keeping track of the days (not minutes or hours) between when you first promised something and when it was finally delivered? Are you measuring the time between your last client update and the next one? Do you know how long -- in calendar time, not billable time -- that the average __________ takes?
You should, because even though your clients see every moment you spend working for them on their bill, I bet they wish you'd pay the same attention to their calendar as you do to your stopwatch.
A/B Test Your Alternative Fees
All too often, firms view alternative pricing as an "all or nothing" proposition. They fear a wholesale move away from the billable hour could drive their firm to financial ruin if they get the "pricing thing" wrong. However, instead of rolling the dice with a firm-wide implementation of an unproven and untested pricing methodology, firms should take a lesson from the web design industry and do A/B testing. What is A/B testing? In The Ultimate Guide to A/B Testing, Smashing Magazine defines it this way: At its core, A/B testing is exactly what it sounds like: you have two versions of an element (A and B) and a metric that defines success. To determine which version is better, you subject both versions to experimentation simultaneously. In the end, you measure which version was more successful and select that version for real-world use. This is similar to the experiments you did in Science 101. Remember the experiment in which you tested various substances to see which supports plant growth and which suppresses it. At different intervals, you measured the growth of plants as they were subjected to different conditions, and in the end you tallied the increase in height of the different plants. A/B testing on the Web is similar. You have two designs of a website: A and B. Typically, A is the existing design (called the control), and B is the new design. You split your website traffic between these two versions and measure their performance using metrics that you care about (conversion rate, sales, bounce rate, etc.). In the end, you select the version that performs best. If you're thinking of moving from the billable hour to alternative fees, don't do it all at once. Instead, identify two similar matters or clients (we'll call them A and B). Keep serving (and charging) "A" the way you always have. However, with "B,'" change your pricing structure. Give "B" a flat fee for the work you're billing "A" for by the hour. Pay close attention to the metrics that matter to you and to your clients. Measure time to complete tasks (not in minutes, but in days). Keep track of the people and resources used. Watch what folks are doing (and how they do it) instead of just asking them at the end of week or month how much time they spent. Most importantly, measure both client and attorney satisfaction with the work and results. If you do enough A/B testing across your client portfolio, you might find that alternative fees aren't as scary or hard to implement that you thought they would be, but that they make your clients and attorneys happier and make your firm more money.
For the Low Monthly Cost of ...
File this one in the "If Doctors Can Do It..." file. Qliance is one of a number of medical startups that aim to deliver high-quality care directly to consumers for a monthly fee -- without involving insurance providers at all. From the website:
We're using a monthly membership approach to health care, cutting out insurance and going directly to our patients to provide the most comprehensive, high quality primary care out there. The Qliance membership approach means you can see your doctor whenever you need to - even after work and on weekends. By eliminating the hassles of insurance, we are able to put our patients first and return control of your health care to you and to your doctor.
What services could you offer to your prospective clients on a monthly-fee basis? Before you dismiss that question out of hand, check out the Qliance site. If doctors can deliver high-quality medical service to patients (whenever and wherever they need them) for a set monthly fee, surely lawyers can do it for their clients. Right?
The Creative Counsel
Here's the slide deck from my presentation to the Association of Corporate Counsel's meeting in St. Louis last month. The audience was (mostly) in-house counsel, and the presentation was geared at getting them to think a bit differently about their relationship with outside counsel. I hope you like it.
KickStart Your New Practice
Want to start a new law firm, but lacking the cash to make it happen? Check out KickStarter, a really unique way to "fund creative ideas and ambitious endeavors" by reaching out to others who want to help.
Would-be entrepreneurs post an idea, and set the amount of money it would take to make it happen. Site visitors agree to contribute a portion of the startup price -- though no money changes hands unless the project is fully funded.
If you want to see how it all works, check out how a few entrepreneurs are using Kickstarter to raise money to expand their Snow Cone Stand.
Some Great Advice from Design Pros
I ran across this article titled I Wish I Would Have Known: Answers From 11 Top Freelancers, where several design professionals share their hardest lessons learned. Here are a few of my favorites:
From Steven Snell:
I wish I would have known that clients tend to not take a project veryseriously if they are paying low rates. When I started out I knew thatlearning and getting experience was more important than making money atthat stage, so I did some very cheap projects. I worked with severalpeople who wanted a website, but it seemed that since they wereinvesting very little into it financially, they just didn’t take itseriously and put in the effort on their end that is needed to have asuccessful web presence. Not only did that make it more difficult forme to do a good job, but it really did a dis-service to their businessbecause their websites weren’t as effective as they could have been.
From Sean Baker:
You’re closing up your meeting with a potential client. Everything wentsmoothly and you think you’re about to land the job. Said client asksfor your hourly rate, in which you give and explain. Unless you’reunderselling your talents greatly, their next question will almostalways be: “Great, and how long will it take you?” Suddenly you’re in acorner… and you’re panicked. You don’t want to scare them away, so youfeel implied to answer immediately, usually shorting yourself on timesimply to appease. Congratulations, you’ve just pigeonholed thisproject. From here you’ll either be doing some free work or you’ll runthe client off once they see a higher rate than you originally gave.
From Brian Yerkes:
You have to ensure that you don’t take it personally, ever. This is thebiggest thing that I personally struggle with. When a client emails totell me that they aren’t happy with a design, it puts me in a bad moodfor a few hours. It’s the number one thing that I try to deal withbetter every time it happens. Fortunately, 99% of the time, my clientsare happy with my work, but you can never win them all.
From Kostandinos:
Don’t be afraid to say “no” to a project. If I could only pass alongone small piece of advice to kids starting out, and even to thosewho’ve been at it for a while, that’s it. Sometimes it’s really notworth it… in more ways than one. Have a bad feeling about a client?Trust your gut and walk away. One more thing: Sometimes the most important and best projects arethe ones you do for yourself, including working on your portfolio andre-branding yourself. The devil is in the details… get out yourpitchforks.
This advice could have just as easily be given by (and to) lawyers. Remember, your clients, peers and friends often face the exact same challenges in their (non-legal) businesses. Engage them, learn from them, and don't make the same mistakes they have.
Audit for Obsolescence
Jordan Furlong suggests lawyers and firms conduct an Obsolescence Audit, aimed at identifying aspects of your business that won't survive the next ten years. Here's his checklist of things to look for:
1. Any offering that’s the same no matter who buys it.
2. Any offering essentially the same as your competitors’.
3. Any offering not optimally designed for client value.
4. Any offering that really, truly doesn’t require a lawyer.
Read the entire post for Jordan's elaboration on each point. A fantastic idea!
Resolve to Let Clients Set Your Price
I've been using my "You Decide" fill-in-the-blank invoice, for over a year now. In that time, I've found time and time again that my clients pay me more than I would have charged them. And, in situations where clients demand a fixed price, I'm quoting them much higher prices (coupled with a money-back guarantee) than I would have before my invoice experiment.
Even though I've been doing flat-fee work for almost a decade, I used to (even subconsciously) focus on the time it took me to do something. Now, everything I do is focused on delivering the biggest "bang" for my clients, knowing that the "bucks" will come. I don't track phone calls, preparation time or limit meetings, and I don't charge for materials, travel, meals or other expenses. In short, I trust that my clients will take care of me if I take care of them -- and they always do.
In 2010, I'd encourage you to resolve to let your clients set your price -- at least once. Ask a trusted client to list all the services they'd like you to provide for them. Suggest unlimited phone calls, regular meetings, document reviews, etc. Provide all these services to them for a month's time. Then, ask them what they're willing to pay for all the work you've done.
You may find your clients value your services more than you do.
Why Lawyers Procrastinate
Can the source of lawyer procrastination be traced to law school? Joel Spolsky, in his always-insightful Joel on Software Blog, takes on colleges teaching computer science, and squarely blames them for turning out students poorly prepared to tackle time-based, collaborative projects.
College students in their final year have about 16 years of experience doing short projects and leaving everything until the last minute. Until you’re a senior in college, you’re very unlikely to have ever encountered an assignment that can’t be done by staying up all night....
Students have exactly zero experience with long term, team-based schedules. Therefore, they almost always do crappy work when given a term-length project and told to manage their time themselves.
If anything productive is to come out of these kinds of projects, you have to have weekly deadlines, and you have to recognize that ALL the work for the project will be done the night before the weekly deadline. It appears to be a permanent part of the human condition that long term deadlines without short term milestones are rarely met.
Lawyers, does this sound familiar? I'm doing some more thinking on this, but it seems to me that law students not required to meet deadlines (and work collaboratively) are ill-prepared to become good lawyers. Your thoughts?
Bonus Your Staff Before Your Attorneys
In this great TED talk by author Dan Pink, he argues that while incentives improve people's performance on routine tasks, just the opposite is true when creativity or problem solving is involved. Incentives not only fail to improve performance on creative tasks, they diminish it. What's more, the larger the reward, the worse the performance. Might be something to think about when deciding just how to motivate lawyers.
Watch the entire talk (it is roughly 18 minutes), it is worth your time.
Clients Care About Price, Not Cost
Last week, I posted a Q & A on Flat Fee Pricing. Just as I've finally found the time to respond to the comments, Jay Shepherd does me one better in this thoughtful piece titled Hourly Billing: The End of the Beginning. Please read the entire piece, but I'll share here Jay's response to lawyers who argue that time determines price (even in flat-fee models) and should be tracked:
The price depends on only one thing: the amount the customer will pay at that time. You can prattle on all you want about costs and budgets and efficiencies and inefficiencies, but it doesn't matter a whit. It's up to you to set a price that is less than or equal to the value the client places on your service. If you do, you'll be hired for the job. If the value to the client is high enough, you should be able to charge enough so that your revenue exceeds your costs, giving you a profit. But don't expect your client to care about your costs or your profits — that's not their job.
Q and A on Flat Fee Pricing
I was recently interviewed by the Minnesota Lawyer newspaper for an article on flat fees that grew out of my Twelve Truths of Time presentation in Duluth, MN. We did the interview as a series of questions, which I'm reproducing below. Once I get a link to the actual article (if it isn't behind a subscription firewall), I'll post that here, too.
In what types of cases does flat fee billing work best?
There's no one type of case where it works best, but there are certainly cases where it works easiest: ones with a certain beginning and ending that fall squarely within the lawyer's expertise. However, any case can be priced on a flat fee basis provided the attorney has the experience to properly evaluate the matter and has the systems in place to handle it economically.
The key thing to remember is that a lawyer doesn't need to make the same money on each case as they'd have made by billing hourly. Instead, so long as lawyers price right on average, they'll win in the aggregate.
Is it possible to do flat fee billing in litigation matters? If so, how does that work?
Litigation is really no different than other complex transactions -- such as building a sky scraper -- that are handled on a fixed-price basis every day. The key is to enter into a mutual understanding with the client that accounts for the unexpected. Much like "change orders" are used by contractors, lawyers, too can utilize them to account for a case that takes an unexpected turn. The key is to define ahead of time the kinds of things that are truly out of the ordinary and make certain the client understands that when circumstances change dramatically, so too can the price.
Another simpler way to begin down the road of fixed-fee pricing is to assign a price to each discrete service (such as depositions, interrogatories, days in court, etc.) that the client agrees to before the representation begins. Then, in partnership with the client, a lawyer can map out a strategy for litigating the case and give the client a pretty accurate picture of the costs before they are incurred.
Can/are large law firms also using flat fee billing? If so, in what kinds of cases?
Large firms should have an advantage in flat fee pricing, because they're not only able to absorb better the "one bad guess" on price, but should have a far greater amount of date from which to accurately estimate what their costs are in each matter. The irony is that while large firms have a significant advantage in doing flat fee work, they are the least likely to adopt it as a primary method of pricing their services.
What are the advantages of flat fee billing?
There are so many, but the principal one -- and the one clients embrace, too -- is that the lawyer's and client's interests are now aligned. Both now desire to handle the case in the most expeditious way, and law firms are now driven to embrace client-friendly innovative practices instead of eschewing them.
What are the disadvantages?
The key challenge in implementing flat fee pricing is that because so many lawyers don't have accurate records of their cost per case or client, they often guess wrong on price.
Are clients demanding other options to “billing by the hour”?
Not all clients are demanding options, because many don't know options exist. I do know from personal experience that my lawyer clients who are introducing flat fees to their customers are receiving an enthusiastic response.
Any final thoughts/tips for practitioners when it comes to flat fees?
Don't be afraid of flat fees or other alternative pricing methods. So long as you know your business and know your clients, you can implement alternative ways of pricing your services that can make you more money and satisfy your clients. And if you're not sure about how to go about developing a flat fee pricing model, ask your clients. They'll love to give you some advice for a change.
Some Tips for the Suddenly Solo
The fellas at Lawyerist caught up with me in Duluth after one of my presentations at Minnesota CLE's "Strategic Solutions for Solo and Small Firms" conference. Sam Glover asked me to share some tips for the "Suddenly Solo" lawyers out there. Here's the video:
Interview with Matt Homann from Lawyerist Media on Vimeo.
Because You Can Do It Doesn't Mean You Should
A quick tip that popped into my head while speaking in Minnesota earlier this week:
Tape the telephone number of your IT/Tech professional under your desk near the tangle of cords coming from your PC (and on your server, router, etc.) so you see it when you're most likely to try to work on your tech stuff yourself.Still tempted? Next to the number, write your billable rate and write theirs.
Culture Lessons from NetFlix
Netflix recently released a "Reference Guide" titled "Culture" on Slideshare, giving everyone a chance to peek "behind the curtain" at the values the innovative company expects from its employees. There are some real nuggets in the presentation. Here are a few of my favorites:
The "Keeper Test" for managers:
Which of my people, if they told me they were leaving in two months for a similar job at a peer company, whould I fight hard to keep..."
The irrelevance of "hard" work:
It is about effectiveness -- not effort -- even though effectiveness is harder to asses than effort. We don't measure people by how many evenings or weekends they are in their cube. We do try to measure peole by how much, how quickly and how well they get work done -- especially under deadline.
The refusal to tolerate "Brilliant Jerks" in the workplace:
For us, the cost to teamwork is too high.
The preference of "Rapid Recovery" from vs. Preventing error:
You may have heard preventing error is cheaper than fixing it ... not so in creative environments.
The entire policy for expensing, entertainment, gifts and travel:
Act in Netflix's Best Interests.
Please read the whole thing, and while you do, imagine how a law firm would thrive (or fail) if it adopted a similar culture as Netflix's.
Thanks to the Emerging Leadership Circle blog for the pointer to the presentation!
