Alternative Fee Arrangement—Think Efficiency and Product

Alternative Fee Arrangement – Think Efficiency and Product

After reading the Above and Beyond KM posts on Alternative Fee Arrangements (AFA), I decided to throw my 2 cents into the discussion. A basic tenant of accounting is that if you simply lower your price without improving your margin (e.g. reduce the cost to deliver the service) or increasing the units that you sell, your profits will go down. In the billable hour model, associates simply had their billable hour quota raised or more associates added, but in moving to AFA, the strategy must change.

The move to Alternative Fee Arrangement will require law firms to focus on (a) turning the delivery of services from on-the-fly to routinized service products and (b) squeezing out the inefficiencies. The basic tenant is that the less total time it takes to deliver the needed service the greater the profit for the organization.

Think — Service Product. The ultimate way to make greater profits is to fundamentally reduce the costs in providing the service by creating a product. A service product is something that goes beyond a marketing brochure but requires an investment in time and money. The key ingredients of a service product are know-how, technology and process.

An ultimate example of a legal product is LegalZoom. On this site, a consumer can fill-out an online questionnaire and create a will. This is a traditional legal service re-packaged into a product. The client fills out the questionnaire and they are mailed a will.

Clearly in a sophisticated transaction or litigation, it will be difficult to achieve this level of automation. However, steps can be taken to reduce the effort level in any matter by automating those areas where a routine process can be developed. The investment to create a product entails setting-up a standard approach, drafting appropriate model documents, and the application of technology. Almost every type of matter has a set of standard inputs, a set of tasks that need to be performed, and a standard set of outputs. Firms that make the investment in creating service products will be able to provide high quality services at a lower cost versus today’s on-the-fly approach. The result is the firm makes more money.

Squeeze Out the Inefficiencies. Law firms also need to squeeze out the inefficiencies so that the same amount of work can be done with less support staff and more fee earners. With the result of fee earners spending their time effectively delivering services instead of floundering with wasteful tasks. Here are some ideas:

  • File email into an Electronic Matter File — the result improves the information flow and reduces the extra effort of filing and reading superfluous emails. Copying an entire matter team on every email means that every member of the team has to spend time reading each email and taking some type of action (delete, file, etc.). This wastes valuable time. With an electronic file, fee earners can come up to speed on matters as needed when they are given a task.
  • Reduce Offsite storage costs — image all paper before it goes to off-site storage. It is cheap to store information offsite but expensive to retrieve it.
  • Improve Document Drafting Process — losing an hour to a mis-behaving document is painful when you are billing by the hour but it is a whole lot worse with a fixed fee.
  • Less Printers — Do you really need all those printers especially if people are filing information electronically?
  • Enterprise Search — the ability to put your hands on the right information at the right time is paramount.

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