4. If you arent the only person in the market offering your indispensable service, or if you havent improved what youre offering (better and faster results, for instance), then your requested rate increase might just be the final straw that convinces a borderline-satisfied client to take the painful and time-consuming step of replacing youespecially if other firms in the clients portfolio (whod love to take your work away) arent engaged in such tone-deaf activities. The fact that clients continue to pay their bills and retain you is not necessarily a sign of satisfaction. Does your gut not tell you thatfor many of your clientsif something better came along, your clients would take it?
5. You just dont inform clients that youre raising rates via a letterhard copy or email. I dont care about the retainer letter written notice provisions: when a client of 13 yearswho has about 10 special deals for pricing different matters with you, as well as relationships with three of your partners and 37 different timekeepersgets a letter that says as of January 1, 2013, our standard rates will go up 10 percent, he is not only unsure of what it is that that means for his teams, special deals and blended rates; hes teed off. Youve just brushed off everything hes negotiated with you over time by fiat. And if you were planning on calling a few days later to assure him his rates wont go up because hes special, hes even more mad you sent him that letter in an effort to inflate his prices to give the illusion that youre lowering them.
Bottom line: if youre unwilling to make the case for a rate increase in person, then you shouldnt do it at all, or at least be thinking about why even you are embarrassed to have this conversation. If youd like to propose increasing what your clients pay you, you should be talking about it in detail and in relation to the value of the work, not in relation to rates.
Is there a Better Path to Firm Profitability and Client Satisfaction?
Yes, but its not easy. And it requires both the client and the firm to sit down and talk to each other, hammering out a solution that aligns the interests of the firm and the client, rather than hammering on each other.
If you want some examples of how its being done by other firms and clients, take a look at the ACC Value Challenge pages, which offer open resources detailing successful practices, tools for you to use in getting the conversation started and progressing, and metrics that can help you define and target success.
It is not the responsibility of clients to re-invent their firms, but it is the clients responsibility to demand more from their firms than a rate increase letter, and reward only those firms that learn to profit from doing their work by delivering improved value.
In consultation with clients, firms need to learn how to profit from efficiency: better staffing, process, pricing, and lowered cost of service, rather than profiting solely from raising rates and hourly billing requirements. In todays world, firms make more money by either doing something so distinctive that there is no alternative service provider to be found, discovering something new and inventing it, or figuring out how to serve customers better for less money; 99.5 percent of firms will never be able to leverage the first two options, and firms that are left to the third have to understand that they wont make more money by telling clients that the firm is raising its rates for the same old inefficient service.
The value of what a law firm offers is not just the sum of the hours they spent doing itit must be based on its value to the client, rather than just its value to the individual lawyers who did the work. And rates alone are not an accurate indicator, nor should they be the lead negotiating tactic for clients trying to assess a firms continuing value. Indeed, neither high nor low rates accurately reward firms for what it is that they do best and most efficiently. That kind of pricing must be based on valuesee, e.g., my previous set of articles in Corporate Counsel on law firm pricing directors and initiatives.
If those of you in law firm leadership truly feel that you should be paid more for what you do, then talk to your clients about the distinctive value of what you offer, or the market value of what it is that they need to have done. Dont talk to them about the high cost of an hour of your time, as if every hour you spend has the same increased value to a client. And remember when you talk to them: clients arent chasing cheap service; they want value and cost control.
A Word to Clients About their Role in Perpetrating this Annual Nonsense
Clients: Why are you expending even one erg of energy responding to rate increase requestspositively or negatively? Why do you need to send missives to your outside firms reminding them that you wont entertain any hourly rate increases, if your actual goal is to get your firms to focus on lowering all-in cost while improving the efficiency of their service delivery? Youre perpetuating dysfunctional behaviors by continuing to entertain this conversation.
Please spend your time and energy this year researching, scoping, and negotiating the all-in cost or price ceilings you will set to reflect the value of each matter in your portfolio. These prices should be based on what the work is worth to you as the client (rather than to the firm); if your firms are not well-positioned to provide the work as you value it, remember that there are many possible and more plausible suppliers in today's market, all of whom deploy quality workers or lawyers. Define what you value in a more tangible way so that your firms can provide exactly what you expect them to deliver, on-time and on-budget, and in accordance with an agreed-upon scope of work, result goals, metrics, and project management plans.
If you do that, you will be on the road to a place where you dont need to care about hours or rates, even if the firms that you wish to retain continue to rely on them internallyyoull get the predictability of budget and quality services you want, without the shell game negotiations. And youll relegate the issue of the proper rates for hourly segments of a lawyers time to the more modest role it should playas an internal unit of measurement of the productivity of a lawyer by the law firm in its accounting practices.
So clients, what would you rather do with your time spent with outside counsel this holiday season? Lock antlers over rate increases with the guarantee that regardless of whether you "win" or "lose," youll have no control over the all-in cost of your services for 2013? Or think about fixing what's so obviously broken?
Throw away the fruitcake practices of the past. This holiday season, give yourself and your client the gift that keeps giving, by moving beyond the rates conversation to invest your firms in providing what you value, determining what the work is worth to you, and scoping the work and process youre willing to pay your firms to deliver: on budget and aligned with your desired results.