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WSJ Breaking News: Clients don’t like getting nickeled and dimed

On an obviously slow news Monday, the Wall Street Journal front page touts “Law Firms Face Fresh Backlash Over Fees.” Jennifer Smith reports on the “widespread revolt” over big bills for “legal miscellany.” I can tell you that there is nothing new in this news from much of the last decade. But it does allow me the chance to once again discuss the issue of nickel and diming clients–often those that are paying seven figure invoices based simply on billable time.

Is this a marketing issue? It sure can be. While many in big law won’t change things anytime soon, small, midsize and boutique law firms recognize that this provides an opportunity to offer up a “differentiating factor” in selling its legal services. Often lost in price comparisons are the costs that go beyond the billable hour, depositions and filing fees. Those extra costs–planes, trains and automobiles; hotels, dinners, legal research and copying–can inflate the final tally by quite a lot. It is like looking at the $25/day rental car rate, only to find the actual cost to be around $70 after taxes and related charges.

All I know is that when I meet litigation friends in Philadelphia, often in town for a matter in federal court, we are usually getting together at the Four Seasons. Dining ranges from Morimoto to Buddakan; Morton’s to the Fountain. When you are working hard and traveling extensively, I’m not suggesting that we treat ourselves to anything less than first class accommodations. Unless, of course, the corporate counsel is staying at the Marriott. It is important to get a feel for the travel policies of your clients, and come in even or lower. There is nothing more damaging than outclassing the guy or gal that hired you during a trial. And when you get less work later, nobody will ever tell you why–the GC will just remember it when glancing at the final bill.

Many major law firms outsource the copying and courier functions. I can’t tell you if they truly mark them up, but I know those companies do pretty well for themselves. Legal research costs have dropped significantly in the age of technology, and again, I’m not sure just how much of a mark-up there is on Lexis research, but flat fees in most cases control overhead…and should make the actual cost less heady than in the days when, as a summer associate, I was warned about racking up computer time and encouraged to hit the library shelves.

The solution here cuts both ways. If you are law firm management and nobody is complaining about secondary costs, it is difficult to change. At a time where we are squeezing cash from additional places, it is tough to say goodbye to the 25 cent copy. However, if you can rein in costs, and sell it as a firm advantage–you might have something there. Corporate legal departments are increasingly demanding discounts, cost-reductions, cost caps and decreased spending–but that is nothing new. It is a bottom dollar argument. If your matters are considered fungible, then you had better come up apples to apples in the final bill. However, high end specialization still commands top dollar–and an emphasis on a good result over a good deal.

Of course, the article quotes Jeffrey Carr, general counsel of FMC Technologies, who seems to be the go-to “exception to the rule” example of in-house counsel demand for various uses of technologies, alternative fees and RFP processes. I often advise firms to build for the sweet spot among corporate counsel, not based on the DuPont Legal Model or any other alternative method to handling outside law firms. We all know that the day-to-day handling of corporate matters has not changed too much in the big money, bet the farm deals.

Which leads me to “real life.” If you start with the premise that the $1,000 an hour big law litigator is not going to change his hotel, limo, dinner or bar tab…and guess what, he is going to be busy every day until retirement…then where does this subject carry weight? In the day-to-day business law matters.
In completing an RFP or selling your law firms’ services, being able to brag about reduced ancillary costs can go a long way to getting the work (or more work). This might involve mid-tier hotel chains, taxicabs and Ruby Tuesday’s, but those dollars add up. In my business, which basically mirrors that of a small law firm boutique, I take a few approaches. In many cases, if costs are minimal (and I never charge for copies or phone calls), I just eat them and chalk them up to the cost of doing business (and consider them part of my billable rate). In other cases, I make it clear that I do my best to “treat your money like it is my money.” They see it in connecting flights, diet dinners and public transportation. And finally, I sometimes provide a budget cap on travel–if I go over, that is on me. This allows me to stay at a nicer hotel and eat a little more–if I feel like it–and perhaps hit my out-of-pocket for a few bucks. Many clients are working off per diems and negotiated hotel deals. Clients appreciate it, and remember it. It is marketing. And in a world where differentiation can be tough, giving up a few bucks on “costs” can pay huge dividends in the long run.

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