How we increased fee income by 14 per cent with no increase in overheads

Law firms run a pretty tight ship these days when it comes to controlling expenses. With a combination of outsourcing, the engagement of utility analysts and a general hardening of attitudes on frittering away cash, there is often little room for making further significant savings on expenses. Spending is often out of the hands of the lawyers themselves, with non-legal management teams taking charge of the cash going out.

However, many firms – and ours is no exception – give lawyers considerable discretion when it comes to the cash coming in, whether that is providing estimates to clients or agreeing the final bill. The amount of chargeable time recorded remains a key ingredient in
the final bill, despite a shift away from hourly billing.

Getting fee earners to record the correct amount of chargeable time is always a challenge, but the rules are
quite simple for us. Record all matter-related time in full – no ifs or buts – because every hour recorded has a chance of being billed. Any hour not recorded hasn’t.

The trickier bit is negotiating the right deal with the client, usually at the outset when discussing a quote or estimate, although sometimes it’s done during or at the end of the job.

Fee negotiation

Lawyers are trained negotiators, so the ability to agree a good deal for the firm should be second nature, but there are various reasons why this doesn’t work:

• we worry about frightening clients off with the initial quote;

• we fail to record all of our time accurately, for example, when out of the office, when helping out on someone else’s file or when giving advice before a matter has been formally opened;

• we underestimate how long we actually need to spend on a file; and

• we don’t like confrontation so, once the work has been done (often creeping beyond the initial scope quoted for) we either reduce the
  fee to something we hope the client will find acceptable or agree to
  a reduction when clients raise
  their eyebrows.

Recognising that negotiating fees with clients is a sales and marketing function – something which is not second nature to most lawyers – was a breakthrough for us. We hired a consultant to spend a day teaching us how to negotiate fee deals with clients. We involved the whole firm, as both fee earners and support staff have a role to play.

We all learnt something about the art of negotiation, as well as a fair amount about marketing. There were plenty of tips and tricks, but the key message that came over loud and clear was to have confidence to hold your price. Clients don’t want confrontation either and are surprisingly likely to back down if you stick to your guns on fees.

Clients also like to feel that they have achieved something for their trouble in asking for a discount or reduction. The biggest mistake is to offer a straight cash discount: this makes the client feel that the initial proposal must have been pitched too high if you are able to reduce the fee so readily. The better route is to offer something else in return – either an extra benefit for the client which costs relatively little to provide or a discount
on a second service which you can
cross sell.

So, if a conveyancing client asks for a discount, offer a complimentary review of his will (something you might do anyway to generate more business) or offer to prepare a will for a discount on your regular price – again, something you might do anyway as part of a keenly-priced bundling of your services.

Return on investment

In the 12 months following our session with the consultant, our fee earners recorded almost the same number of chargeable hours as they did in the previous 12 months and our charge-out rates didn’t go up. So, the work in progress recorded in the 12 months either side of our training was effectively the same. But, what was remarkable was that our fee income grew by around 14 per cent to £700,000. With no increase in overheads, this went straight to the bottom line.

On the face of it, this was a stratospheric return on investment.
The increase was not entirely down to
our newly-acquired ‘holding our price’ skills, as other issues such the timing of some large personal injury bills were easily identifiable but, even so, the
impact was enormous. Importantly,
the cashflow benefits were just as
marked – there was no slowdown on payment times and no sudden rush of
fee complaints.

The message has faded a little over time, with new fee earners not having had the benefit of the training. We also have a lot of work to do in ensuring everyone records their time properly. So, it’s probably about time that we had another training session. Assuming we use the same consultant, we aren’t expecting him to offer us a discount…

Andrew Wright is managing partner
of Clarkson Wright & Jakes
(www.cwj.co.uk), a member of law firm network LawNet (www.lawnet.co.uk).