2/19/10

Finally Figuring Out Fees

Two recent blog posts (when combined) make for an excellent observation (indirectly) on the ability of the legal market to compare pricing at the fee level -and not the hourly rate level. I have previously made the point about a how market transition from rate pricing to fee pricing makes sense. Clients have no market price for fees to use in evaluating pricing. But this shift to fee-level price comparison has to start somewhere. By combining the lesson of the two blog posts, you see this happening. Jay Shepherd points out that savings for a law department won’t come from discounted rates. He instead suggests "open pricing" which is another way to say "not by the hour." His three options for saving on fees are: 1- Buy less, 2 – Buy cheaper, or 3 – Use open pricing. The point to take from this is that clients should look at the whole fee (in terms of his open price) instead of evaluating price at the hourly rate level. The second post (article really) explores how Levi Straus went to 100% AFAs. Fees for 2010 were "determined by a review of historical spending trends and planned work for 2010." They looked at the legal work they bought last year and how much they paid. Then they projected how much work they would need in 2010. Levi Straus figured it out. They evaluated their legal spend at the fee level instead of the rate level. This is easier said than done. For one thing, you have to free yourself from the ‘hours equal value’ mindset and trust your approach. Levi Straus is not asking for hourly bills to make sure they guessed right. Instead their GC states: "My internal lawyers are the most valuable asset I have, and I felt they should be spending their time creating strategic advantages for the business instead of managing outside counsel." Perhaps its just me seeing trends I am looking for, but I believe these two posts together demonstrate both the value and the ability to move away from the hourly rate pricing market. Clients can function in a world where they evaluate prices at the fee level. With this fee-level pricing market emerging, more and more clients will feel comfortable comparing price at this level. This will put them in a much better position to manage their legal costs going forward.

Bookmark and Share

1 comments:

dallascarwreckattorney said...

Very interesting article!! Thanks for sharing this.

 

© 2014, All Rights Reserved.