September 01, 2018

A Novel Approach: Subscription-Based Legal Services

Subscription-based systems can benefit both the firm and its clients.

Steven J. Best

Businesses throughout the globe are actively restructuring their traditional revenue model into a subscription-type business. A subscription business model is one where a client pays a subscription price to have access to a particular product or service. The model was pioneered by magazines and newspapers in the early 20th century and is now used by many businesses as a source of recurring revenue. Recurring revenue is that portion of a business’s revenue that is likely to continue in the future. It is regarded as predictable and stable income that can be counted on in the future with a high degree of certainty. In this article, I’ll discuss whether a law firm should explore a subscription/recurring revenue model for its future. And, while you should approach this new business model with an open mind, you must also make sure your firm can sustain your current business foundation with such a model.

Concerns With Traditional Billing Methods

Many law firms traditionally bill their clients using a standard model known as hourly billing. Hourly billing was born, in part, out of the 1975 U.S. Supreme Court decision Goldfarb v. Virginia State Bar. In this case Mr. and Mrs. Goldfarb contracted to purchase a home in Virginia and, as part of securing a mortgage, were required to hire a local attorney to conduct a title examination of the property. They found that all lawyers in northern Virginia charged the same minimum flat fee for title search/closing services, which made shopping for better prices pointless. The Goldfarbs sued the Virginia State Bar, claiming that these fee schedules amounted to price fixing and thus a violation of Section 1 of the Sherman Antitrust Act. The case made its way to the U.S. Supreme Court where, in a landmark decision, the court agreed that minimum fee schedules violated federal antitrust law. Many law firms around the same time, and very much so thereafter, started billing by the hour (and keeping detailed billing records).

Moreover, lawyers are also responsible for charging a fair and reasonable rate commensurate with a lawyer’s experience, topical knowledge, skill and overall geographical acceptance multiplied by the number of reasonable hours (or part thereof) worked on each individual task. The result of this method of pricing is that lawyers are frequently maligned (despite the Goldfarb case) for charging a rate that is too high, or too many hours for a related service, or both. Despite these reasons not to bill hourly however, the practice continues as the standard for many law firms. Yet the hourly billing model is rapidly being rejected as outdated and partially unethical. For example, should you bill a 0.1/hour to a client for leaving a telephone message? Did it really take you six minutes? Thus many legal clients are now demanding changes. As noted in a FindLaw.com article titled “Types of Pricing for Legal Services: Hourly Billing,” “above all else, attorney fees must be reasonable and comply with your state’s [or province’s] rules on fee arrangements. With regard to hourly billing, ABA Model Rule 1.5, Comment 5 specifically admonishes that attorneys not use ‘wasteful procedures.’”

In addition to hourly billing, there are more ways to charge for legal services, including but not limited to contingent fee, fixed rate, progressive fees or some alternative structure. Lawyers’ statements of work are highly scrutinized for fairness, justifications for work done and overall reasonability. Moreover, when billing by the hour, client invoices often result in sticker shock when presented for payment. Firms that work hourly for insurance companies frequently find that their insurance company clients regularly reject line items of lawyers’ hourly billing as too pricey, not (pre)authorized or label work that lawyers do as “paralegal work” and demand rate adjustments. Thus, from the perspective of billing, we lawyers are damned if we do and damned if we don’t in these traditional revenue models. Further, the hourly revenue is limited by the number of working hours in the day. Many of us expand those working hours to the point where we have little or no life outside of work. Contingency fees and flat fees are also highly scrutinized for the same fairness, reasonability and ethical accounting of work done. Frankly, we’ve put ourselves in a lose-lose situation from any angle you look at it.

Consider the Subscription Model

What if there were a better way to realize regular revenue at a fair rate? Let’s now consider a new revenue model: the monthly legal fees subscription. This model, in which clients pay you a flat monthly fee, gives your clients both breathing room and flexibility to truly appreciate your service and, more importantly, to keep them coming back for more.

Many experts recommend that businesses, in general, consider changing their current revenue model in favor of a subscription business model. Just Google the topic. You’ll find a plethora of books, treatises and articles advocating this. We see this shift in industries, including clothing (Trunk Club, Stitch Fix), food (Blue Apron, Home Chef, HelloFresh), office supplies (Rad and Hungry), music (Amazon Music, Pandora, Spotify), gym memberships, airline memberships, pet supplies and more. John Warrillow, author of the book The Automatic Customer, calls this new subscription revenue model economy the “membership economy.” So here is the question: Can lawyers reasonably and ethically provide legal services by offering our clients “membership” in a legal service “club” and charge them a reasonable monthly fee for those services?

We all like to belong to something and realize exclusive benefits. Members get to step to the front of the line (think Amazon Prime, TSA Precheck, Global Entry, etc.), over others—it’s human nature. Thus why not create a value in your law firm beyond, but inclusive of, legal services to which you invite your clients to “belong”?

What should you bundle? Attorneys already help clients solve major pain points, including contract review and negotiations, business venture start-ups, real estate closings, simple traffic violations, auto accident insurance negotiations, cease and desist letters and the like. Further, we’re often consulted because a client just has a quick legal question. What if you bundled these services and also gave clients a “membership benefit” such as subscribing them to a “special” monthly newsletter with thoughtful, meaningful content; producing and updating a series of exclusive membership-only topical videos for your members; and offering regular monthly or semimonthly meetings with your clients to go over any legal issues they wish to review with you (with appropriate limitations clearly spelled out in your subscription agreement)—all for a flat recurring fee? However, ethically, we must not promise more than we can deliver. If we don’t deliver what is promised, that would probably make our fees unreasonable and (possibly) therefore unethical.

Is This Right for Your Firm?

Consider three key questions when deciding whether a subscription/membership model is right for you, your firm and your clients.

Question No. 1: Has your net income substantially remained the same despite years of struggling to attract new clients?

A subscription/membership model, if done properly, should permit you to streamline your revenue and make a greater profit. Yes, it involves exploring and coming up with the right balance of services and additional benefits for your clients, and yes, that means a bit more work ahead of the first month to do the necessary planning, marketing, testing and discovery. However, the ongoing work following this initial push will likely be significantly less. And once you get into a rhythm, it will be easier for you, and it should be more palatable for your clients as well.

Question No. 2: Are your clients always contacting you in crisis mode?

Most of the time clients will approach their lawyers when they’re already in too deep and need help putting out a fire. And their crisis evolves into your crisis and stress. Have you ever taken the time to think about why this might be? To the crisis client, the lawyer-client relationship has been bought, not earned or formed over time. Often clients are afraid of calling us because they feel like every time they pick up the phone they will be billed. So they wait until it’s only absolutely necessary, hence the crisis mode.

A subscription-based monthly process calls for you and your clients to have regular touch points that may address minor issues but will also encompass major problems, possibly before they arise. This leads to a stronger trusted client-legal advisor relationship overall. Once your client is free of the worry of calling you for a fee, it will reduce the need for crisis control and reduce your stress level. Plus, if they have regular meetings with you, the seasonal spikes and crisis management should naturally lessen.

Question No. 3: Finally, are you finding yourself strangled by the billable hour?

Too often firms get wrapped up in the notion that if their clients aren’t paying them to do a specified task, they can’t spend their time doing it. Or, if they do something that doesn’t fall into their level of service or doesn’t have an immediate, positive effect, it’s not worth pursuing because there is a natural fear of not getting paid.

The problem is that this sets lawyers up to chase their clients around, responding to haphazard (and crisis-oriented) requests, which makes for a very inefficient and confusing work environment. And, since hourly billing, again, is bound by the number of working hours in a day, many of us find our work life creeps over into our personal life, causing us personal stress and relationship damage. The benefit of the subscription model is that it allows breathing room to give a little extra within a framework of things that happen monthly.

Lastly, as with LegalZoom (now considered the granddaddy of subscription-based “legal services”), you must also invest, up front, in the right technologies to allow you to deliver everything you promise and leverage your (and your staff’s) time properly. A simple, straightforward example of what I mean here is to consider, among many technologies, document assembly software such as TheFormTool, Pathagoras, Typeform or HotDocs. These tools provide a time-saving tool for you to collect data from your clients, save the data to a database or “answer file” and use that data repeatedly to fill in documents efficiently and correctly every single time.

Instead of cobbling together a set of wills, codicils, trust documents or litigation discovery documents and the like by cutting and pasting from an old client’s set of documents, you and your team instead easily produce legally accurate, properly formatted and even quite complex documents in a matter of minutes. This improves your efficiencies, permitting you to deliver more to more of your members in less time. The value you charge for these services is included in the subscription model and is a member benefit. Otherwise, you may find yourself spinning your wheels creating and proofreading documents for a low subscription fee. Instead, you want to be able to create documents easily, efficiently and in as little time as possible to maximize your profits.

You may need to invest thousands of dollars up front to properly build your firm’s template set so that the production of legal documents included in your subscription/membership model actually works for you and your staff. This up-front investment leads to a greater revenue benefit that is, in fact, unlimited once the templates are loaded up and working for you.

Finally, and most importantly, as lawyers we are ethically bound to deliver legal services for a fair and reasonable fee. We again refer to ABA Model Rule 1.5, which, in a nutshell, states, “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee.” Thus, if you choose to introduce a subscription revenue model in your firm, balance out the revenue benefits with the obligation to deliver a service and price these services in accordance with the Model Rules and/or Rules of Professional Responsibility in your jurisdiction. You may even want to discuss your new business model with a lawyer who specializes in legal ethics in your state or province before introducing the product to your clients and your community.

The bottom line: The subscription model/membership economy is here to stay, and your practice may be well-suited to provide quality legal and supplemental services to your clients for a fair and ethical monthly fee. Do your research, test your theories, read books like The Automatic Customer and create a plan. Then test and modify the plan. Test and modify it again. Keep your new product agile and relevant. Finally, as Sam Glover wrote in a Lawyerist.com article titled “How to Offer Subscription Fees,” “make sure you don’t try to fit every client into a subscription-fee arrangement. Just as with flat fees, subscription fees are a tool that can help you serve your clients better. When that is not the case, use another arrangement.” And good luck! Perhaps you will start a great trend in our profession.

Steven J. Best

Founding Partner, Affinity Consulting Group

Steven J. Best is an attorney with a background in law, accounting and economics. He consults with law firms on law office technology, practice management, time/billing/accounting and document management issues. He is the author of The Lawyer’s Guide to PCLaw (ABA 2015). sbest@affinityconsulting.com

Entity:
Topic: