I received the following email from James Franks, a criminal defense attorney, in response to my series of articles in The Complete Lawyer:
I just read your article regarding who is in charge of value in your firm. The article is brilliant. I know because I’ve been saying these things to my fellow attorneys for years. I am senior in a two person firm. We practice only in Criminal Defense and Involuntary Psychiatric and Drug & Alcohol Commitments, so it is easier for us to follow your advice because we tend to do much the same work on a relatively regular cycle and so can estimate the amount of time we will spend on a particular matter.
I set my fees by determining two things: 1) What is my work on a particular case going to be worth to a client (or client’s family)? 2) What is the work worth to me in terms of cost plus profit margin? I determine the first by putting myself in the client’s shoes, e.g. what would it be worth to me to possibly avoid spending the next five years in prison. This starts out a trial & error, but becomes second nature. I only determine the second to make sure I am not taking a case which will lose me money. I determine the second by gauging the amount of time I should spend on the matter, much as a mechanic used their time book to determine how long it should take to replace a bumper on a Toyota. Again, it starts out a trial & error, then becomes second nature. I then quote the client a flat fee which is the HIGHER of “worth to them”, and “worth to me”. I quote the “Worth to me” when it is higher because occasionally I might miscalculate what a matter is worth to the Client, i.e. they might pay more than I expect. The Client, as you said, does not care what the costs are to you, or, frankly, how many hours you are going to spend.
I require my fees be paid in full up front. Thus my client knows what their actual costs are, and I have no billing issues or collection issues. Most of the attorneys I know spend half of their time trying to COLLECT their fees.
Occasionally I underestimate the hours I will spend on a matter. I just adjust the next time a similar case comes to me. A very inexpensive lesson.
I’ve also printed out two other articles by you re: hourly billing. You’re ahead of the curve.
Hourly billing is a dinosaur. But lawyers who have been using it for years have difficulty burying it. Maybe an asteroid would help.
Notice how he does his cost-accounting up-front, before quoting a price to the customer. This is critical in Value Pricing, since price drives costs, not the other way around.
I also believe even if you’re not doing work that is routine on a regular cycle, there are still ways to scope and phase this work and provide a Value Price. Chris Marston, CEO from Exemplar Law Partners, has an excellent approach explained here.
Thanks James, I appreciate the feedback. An Asteroid indeed.