Taking the First Steps Toward Value-Based Billing

At the center of the discussion about building a value-based law firm is the topic of fee arrangements, specifically the desire to move away from hourly based billing toward alternative fee arrangements.

Although firms seem to be taking baby steps toward “value-based” billing models, it is clear –with apologies to Mark Twain—that reports of the death of the billable hour are an exaggeration.

It seems even well-intended parties on both sides struggle to turn a philosophical interest in value-based billing into an actionable arrangement upon which both sides can agree.

The ACC’s Susan Hackett, in response to my June 9 post on Legal OnRamp called  “Alternative Billing Baby Steps,” noted, “I’d love to see both firms and departments defining value upfront in more ways than on an hourly basis, and doing the hard work of planning and executing the staffing and work models that deliver value as it’s defined by the client and leveraged by the firm. I would rather see value structures that make the hourly business model in firms obsolete.”

Susan is right in that real change won’t happen until there is a commitment at the firm and client level. The challenge, of course, is that this is hard work that impacts staffing, compensation, technology infrastructure, business processes, recruiting, professional development and more. That’s a lot of change for any organization, let alone a partnership-structured law firm.

To start moving in this direction, value-based billing needs to be integral part of a law firm strategic plan and integrated into a broader client relationship management program. Only then will law firms prioritize value-based billing and be able to create an actionable strategy to start moving toward the end game.

I propose three simple steps to get started. They are not new or particularly revolutionary. They also aren’t hard, but few firms are doing them in a way that is moving them toward the result they want to achieve.

1. Listen to your clients. Identify the general counsel that are looking for institutional change in billing.

2. Define the end game. What is specific, ultimate goal for the law firm and the client?

3. Create an actionable plan that will allow you to move toward this goal in an incremental way.

By starting with the end, both sides know what success looks like. And, it will keep firm’s from mistaking baby steps for the end game.

Posted on June 16, 2010 in Alternative Billing Arrangements, Client Teams

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