June 2013 | Finance Issue
Six Alternative Views on Alternative Fees
Alternative fee arrangements (AFAs) are usually discussed in the context of cost-cutting. It’s a negative connotation.
General counsel (GCs) are under pressure to reduce costs and bring a level of predictability to the legal expenditures, which trickles down to the law firms they engage for legal work. In many cases, outside counsel may look to avoid AFA negotiations because conventional thinking is such arrangements are less profitable. Here’s a different way to think about AFAs – as a competitive advantage.
AFAs boil down to pricing – and pricing is part of the marketing mix that businesses experiment with all the time to answer one underlying question: What is the fair value of a product or service?
Pricing and Value
Pricing sends a message too, and speaks to value, or the perception of value. Discount and premium pricing are two very distinct strategies with conditions. Retailers that discount too often condition customers to simply wait for a sale – which leads to wide and unpredictable variance in the cadence of revenue.
Premium pricing has limits too, because first, it eliminates an entire segment of price-conscious customers, and second, because even those in the market for finer things have price thresholds.
Pricing strategy is at the very core of a business model – and in the legal industry those models are slow and resistant to change. Survey research consistently demonstrates AFAs account for roughly 20 percent of legal spend. On the surface, 20 percent doesn’t seem like much, but given the overall size of the legal market, it’s indicative of billions of dollars in trade for legal services.
Progressive law firms are seizing the trend and using pricing as a driver to reconsider how they practice law and package their services. This enables their law department counterparts to both provide the predictability in spending demanded by business economics, while ensuring they are getting value.
To that end, here are six ways to think differently about AFAs:
AFAs in a Different Context
For law firms, AFAs are an opportunity – an opportunity to improve efficiency and differentiate from the rest of the market. The legal industry by nature is risk-adverse – nobody wants to be first – but those willing to embrace change sooner rather than later stand to gain a long lead that will be challenging for competitors to close. It starts by changing how we think about AFAs.
Russ Haskin is director of Consulting and Services for Redwood Analytics at LexisNexis.
LAW PRACTICE TODAY
Micah U Buchdahl, HTMLawyers, Inc
Andrea Malone, White and Williams LLP
BOARD OF EDITORS
John D. Bowers, Fox Rothschild LLP
Margaret M. DiBianca, Young Conaway Stargatt & Taylor, LLP
Nicholas Gaffney, Infinite Public Relations, LLC
Nancy L Gimbol, Eastburn & Gray
Richard W Goldstein, Goldstein Patent Law
Katy M. Goshtasbi, Puris Image
William D Henslee, Florida A&M Univ College of Law
Allison C. Shields, Legal Ease Consulting, Inc.
Gregory H. Siskind, Siskind Susser, P.C.
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