Why lawyers discount by default, and leave late
Lawyers give away fees. It’s like chucking barrels of tenners out of the window. Every day.
I know the average punter on the street might joke about lawyers charging a fortune. But very few lawyers go home on time. And the bottom line for most law firms suggests they certainly aren’t billing for all of those extra hours, spent burning the midnight oil.
Why not?
I run a consultancy helping fee earning firms to earn better fees. I also deliver the only research programme that benchmarks how professional service firms generate fees.
So, here’s what I usually see:
Lawyers who quote a competitive hourly rate and bill for every minute of the hours worked
Lawyers who offer a fixed fee, and then strictly control the time spent on the work, to ensure profitability
Lawyers who discount… without good reason… all the time.
I’m kidding… I only ever see number three…
I’ve seen lawyers discount:
By default, when a client has been referred by a colleague
Automatically, when a client asks them to do a second piece of work
Because, it’s too scary to call the client to explain that, as per the terms agreed, the fee needs to increase, due to something unforeseen
Because they are only measured on gross/top line contribution, not actual profit. So they choose to give away time for free that they should be spending with their families (or down the pub!)
When they stop bothering to track the time that goes into fixed price work. Then quote the next file based on wishes, hope and presumably the length of a piece of string.
A ‘wheeler dealer’ client rings up and successfully negotiates after the work has finished, even though they billed the price that was agreed at the start
When one department is described internally as a ‘loss leader’, but then the firm doesn’t cross sell to any of those clients. A loss leader that doesn’t lead to profitable work is just a loss. OK, this bit might not technically be discounting, but it is still giving profit away in a way you wouldn’t see in any other business.
There are plenty more. But the fact is most discounts happen without any pressure from the client or the competition. That’s inexcusable.
Discounting by default without any form of check and balance from the rest of the business is endemic in the profession.
So, here’s my top tips:
Every discount needs to have a reason - build a culture and process where every fee earner is able to justify every discount
Get your FD to tell you what the actual average charge rate is for your practice. That’s the money divided by the total number of hours worked. Sainsbury’s don’t sell a tin of beans without knowing the real cost of selling, and neither should you.
Stop quoting a high hourly rate and then giving time away for free. Quote your ‘real rate’ but bill for everything you do. OK - I accept this one might be a bit too scary!
Work on improving the client journey within your firm. Train your colleagues to uncover the need and value in what you could do to help their clients (it’s probably only three questions)
Find out who owns and monitors pricing strategy in the firm. Ask to see the plan - every lawyer and department should know their role in it.
Your firm does have a plan, right?