Asked to Cut Your Fees? Now What
Do your clients keep asking for a break on fees? Sure, some did it in the past, but lately it’s becoming pro forma. And other than just caving in, it’s hard to know how to respond. If anyone can offer perspective, it’s Susan Hackett. As former Senior VP and general counsel of the Association of Corporate Council, she helped implement the ACC Value Challenge. So we asked her the tough question: “What do you do when your client asks you to cut your fees?”
Step One: What Are They Really Asking For?
When in-house clients ask you to “cut your fees,” you want to make sure you’re hearing what they’re asking for. I’d begin any response to such a question by asking what they hope to accomplish. Remember that if their answer is “more controlled or predictable cost,” the method by which to accomplish that may not be by cutting fees, but rather by sitting down to examine how the work, matter over matter, might be better priced, staffed, processed or delivered. I can’t tell you how many times I’ve been privy to a conversation between a client and a firm where the client thinks it’s saying one thing, but the firm hears another. That’s usually because both sides may be less than articulate, or less than specific, or may force what they’re hearing into a set of responses that is limited by their own experience.
So as the firm “hearing” this request, I’d first make sure to take time to explore and understand what the client is actually asking for or looking to accomplish. Then, think about a variety of ways that you could respond, beyond “the discount.”
Step Two: Know Your Costs—and Your Worth
Firms hearing their clients articulate a desire to control or lower the cost of their services need to understand their own cost of service production before they can respond. And they need to think about how valuable this client is to the firm, since responding with something other than a discount could involve some major restructuring or re-staffing.
Sometimes, clients want cost reductions that are necessary to their business, but not possible for the firm to provide. If that’s the case, I’d remind you to just say no. Too many firms take on “loss leader” projects in hopes of continuing relationships with clients they wish to work for, or simply because they’ve never learned to say no to any business offered. But that’s a really bad strategy.
When you’re an AmLaw 25 firm, you may be able to afford some loss leaders each year, especially if you want to take on the project for purposes other than profit, such as associate training or entering a new area of practice. But even then, I think it’s bad policy. Loss leaders “train” clients to believe that they can sustainably retain firms and pay less than the service is worth. Do you honestly believe that if you offer clients work at 25 percent less than what it costs you to provide that they will agree to pay 25 percent more for it next time? Or 35 percent more when you institute your planned rate increases next year? The loss leader mentality also causes firms to focus attention on hourly rates, discounting and then “re-hiking” their fees, rather than on developing better business processes, pricing options, and staffing decisions that can deliver the client’s work at lower cost (rather than just a lower rate but with the same internal costs).
So here’s what your firm should be doing:
- Know your internal cost of service and whether “this or that kind of work” priced in “this or that manner” is profitable.
- Establish what it is you believe your services are worth (which is not necessarily the calculation of the rates of the lawyers applied to the stack of hours they billed to finish a project).
- Then budget and stick to those projections—even if it means saying no to some requests.
When you say no, you underscore (not undermine) your value, and demonstrate that while you understand the client’s cost pressures, you can’t deliver that work at the price they’re asking for. Offer them referrals to other firms that may be positioned to consider the work at that price. Then tell them what it is you can offer them at a predictable price or for a budgeted all-in fee. Clients appreciate candor and integrity, and you know that everyone—at your firm and with the client—will regret your decision to take on a matter you can’t deliver within budget or without a loss. You’re better off spending your time on work that is profitable to produce—or working on changing the way you deliver your services to increase your efficiency and lower your costs so that you can take on such work in the future.
Think Beyond the Discount
In sum, if you’re a client who needs to talk with your firm about lowering or controlling costs, remember to be specific about what your goals are and what would be valuable to you, and avoid simply demanding a blanket discount on fees. You need to empower your firm to take on the responsibility for meeting your expectations by thinking about how it can structure its services and prices to meet your goals and needs.
If you’re a firm hearing a client say it wants to cut costs, make sure you understand what they’re really asking for before you jump to the conclusion that they want a discount on hourly rates. We all know that discounted fees rarely lead to “all-in” final cost control or reductions—all discounts do is seek “cheaper” rather than carefully crafted solutions, and they rarely work. That’s because “valued” service is the result of collaborative conversations between firms and clients. So turn that request for a cut in fees into an opportunity to develop a richer and more valued relationship that is sustainable for the firm and that drives the results that clients crave.
Susan Hackett is the CEO and CLO of Legal Executive Leadership, LLC, a legal management consulting practice in the Washington D.C. metro area. She is the former senior vice president and general counsel of the Association of Corporate Counsel (ACC), where she served for more than two decades as the “voice of the in-house bar” and built a loyal network of thousands of in-house and outside legal executives, as well as a reputation for innovation, excellence and success. Reach her at email@example.com and follow her at @HackettInHouse.
For more on how to rethink how a firm can deliver work more efficiently with greater results and more predictable costs (of production for the firm, and within budget for the client), check out these resources:
- Changing Stripes: How to Work Collaboratively on Alternative Fee Arrangements
- ACC Value Challenge Resources: Tools to Help You Save Time and Money
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