Boutique Law Firms, Legal Research, Money, Small Law Firms

From Biglaw to Boutique: A Moment of Truth

The changing market invites, if not demands, lawyers to offer concessions for clients. Happily, many of the concessions have relatively little impact on the firm’s bottom line, but can garner significant goodwill with clients. For example....

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Over the last few years, the legal market has changed dramatically. We live in a buyer’s market in which the clients hold the upper hand and can demand financial concessions from their attorneys that go beyond lower hourly rates.

This good news for clients might sound like bad news for lawyers. If lawyers can’t charge as much, they likely won’t make as much. But although greater price competition might lower revenue for some firms, it surely presents an opportunity for others. Small law firms often compete with bigger firms on price, and increased client sensitivity to legal fees can be a marketing boon to firms that can undercut their competition (with the familiar caveat, of course, that the smaller firm must be able to provide the resources and quality required by the particular matter).

The changing market invites, if not demands, lawyers to offer concessions for clients. Happily, many of the concessions have relatively little impact on the firm’s bottom line, but can garner significant goodwill with clients. For example….

Photocopies: Some firms charge fifteen, twenty, or even thirty cents or more for a photocopy. I’ve found that many clients hate paying what they view as an exorbitant markup for copies. Photocopies are a simple, discrete line item that clients know how to value. Sometimes they can’t judge whether a motion should take five or ten or twenty hours to prepare, but they know how much a photocopy actually costs. So it makes sense that clients would focus on this line item.

The financial effect of not charging for copies, or passing on the actual cost without a markup, obviously varies by firm. The payoff in goodwill also is tough to quantify. All things considered, this is a concession I’m happy to make and that I believe my clients appreciate.

Electronic legal research fees: Billing clients for Lexis or Westlaw charges was once very lucrative for some firms. Law firms were charged a flat fee for unlimited use of their selected databases. Then, instead of charging the clients for their pro rata share of the flat fee, the firms would charge as though it were paying for the electronic research à la carte. Discarding the markup on services supplied by third parties also strikes me as a reasonable step a small firm can take in the name of goodwill.

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Billing for billing: Some firms charge for their time spent preparing or reviewing the invoices. Lawyers know the value of their time, and preparing invoices — especially thorough, detailed invoices — is time consuming. So lawyers naturally want to capture this time spent. I tell clients that I don’t bill them for the privilege of preparing their bills.

Pitches: To win business, lawyers sometimes have to invest a lot of time preparing client or case-specific pitches, giving a preliminary analysis of the issues, etc. The amount of necessary or expected detail can vary, but in any event this, too, can be time-consuming. If the pitch is successful and the firm is hired, the firm might charge for its time already spent. I clarify to prospective clients that, even if they hire me, the work I’ve done for them in preparation won’t be charged.

Travel and waiting time: Most firms generally charge their attorneys’ full hourly rate for time spent traveling or waiting. I understand the rationale about opportunity cost. But from the client perspective, an hour spent traveling is not worth the same as an hour spent forming a strategy or researching legal issues. I think it is reasonable for clients to insist that, whenever possible, their attorneys spend travel or waiting time otherwise working on the client’s matter so that the hourly fees always reflects actual substantive work.

I’m sure there are many more concessions clients can demand to lower their legal bills. And I’m happy to offer them, even though they result in lower revenue in the short term. Rather than focus on the short view, you have to try to see a little further. Offering some concessions may be “penny foolish” to a firm, but I’d like to think they also are “pound wise” because, hopefully, they will result in more business and client loyalty in the long run.

But these and other concessions only go so far. Some clients, burned by excessive attorney fees in the past and relishing the buyer’s market of the present, think their best option is to micro-manage their attorneys and keep an eagle-eye on their invoices. They might demand the concessions I describe, and others. Strict client oversight, although helpful, and absolutely appropriate, ultimately won’t work to ensure lower overall attorney fees.

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The reason is that it can be very hard for a client to assess whether it is getting good value from its attorney. Sometimes a client does not know how long a given task reasonably should take. Compounding the problem, it is virtually impossible for a client to confirm whether a given task really took the amount of time claimed by the attorney. As a client, you want to discourage excessive billing, but it’s nothing you can stop through mere policing.

So regardless of the number of billing concessions it demands, a client who is paying by the hour remains, to some extent, at the mercy of its attorney. Clients should realize that their careful scrutiny of invoices, and demand for billing concessions, however necessary and appropriate, can only get them so far. They also have to hire an attorney they can trust.

This is why I tell prospective clients about a “look you in the eye” moment of truth that goes beyond any concessions about billing or rates. While hopefully not staring like Larry David, I try to look a client in the eye and assure them that I will bill them honestly and fairly. There’s nothing you can say to force this trust; a client either believes you, or not. And even if they hire you, that becomes just the first step in a longer campaign of earning their loyalty and future business.

Tom Wallerstein lives in San Francisco and is a partner with Colt Wallerstein LLP, a Silicon Valley litigation boutique. The firm’s practice focuses on high tech trade secret, employment, and general complex-commercial litigation. He can be reached at tomwallerstein@coltwallerstein.com.

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