Charging the difference between time and value


This article by Chris Merritt was originally published in The Australian - Legal Affairs on 2nd November, 2012. -Click here to view the original.

Charging the difference between time and value

For Matt McCormick, there is a world of difference between law firms that offer fixed fees, and law firms that offer value pricing.

They both might appear to be "alternatives" to the billable hour, but appearances can be deceptive.

"A lot of fixed pricing - and I have done it in the past - is essentially based on hourly pricing," said Mr McCormick.

It might give clients the impression they have escaped the billable hour. But in reality, some firms merely estimate how many hours a project will take and then multiply that by their hourly rate.

That is a far cry from the system Mr McCormick has implemented at his newly established Brisbane firm, McCormicks Law and Consulting.

The firm, which is an incorporated multi-disciplinary practice, formally opened for business last month.

But it has been working since July with clients who followed Mr McCormick from his former firm, where he had been managing partner for ten years.

The formal opening coincided with the launch of new research that debunks the theory that law firms are under pressure to keep using time-charging in order to satisfy client demand.

The research, by the Australian Corporate Lawyers Association and the Corporate Lawyers Association of New Zealand, revealed that in-house legal departments dislike being confronted with time-charging but are not being offered alternatives.

Mr McCormick said value pricing was a system in which the cost of a particular service was determined by its value in the eyes of the client.

"Because value is subjective, you need to have a proper and continuing conversation with your client because they are the only ones who can ascertain the true value of a piece of work," he said. "It is a collaborative approach."

He said it would not be easy for firms to make the jump from disguised time-charging to true value pricing.

"You have almost got to turn the way the firm operates on its head," he said.

"Firms operate around time sheets and hourly billing. All practice management systems are sold on the basis that they will capture as much time as possible, and you are measuring your staff's performance based on the time they put in.

"So you need to change a lot of long-standing assumptions and change the performance management of staff to take it away from time and use other metrics."

At his firm, the performance of the six staff members is measured by customer satisfaction, customer attention, customer referrals and general feedback.

"At the end of the day, you know when your staff are performing. You don't need their level of WIP (work in progress) on a daily basis as an indication of how well they are performing."

He said it was a system of staff assessment based on output, not process.

Instead of encouraging staff to focus on their timesheets and maximise their billable hours, he said the system at his firm encouraged staff to think about ways in which they could provide solutions for clients.

"In the main, lawyers genuinely believe they are selling time," Mr McCormick said.

"But their clients are not buying time -- they are actually buying value."

Mr McCormick established his own firm this year because he was tired of having to justify timesheets to clients and wanted a free hand to adopt value-based billing and a more collaborative relationship with clients.

"I wanted a firm that did not concentrate so much on time, but was more about enjoying what you are doing, valuing what you are doing and having loyal customers that actually value what you are providing."