Would You Like Some Value Billing With Your Alternative Fee Arrangement?
Opinion by Peter Frankl
Alternative fee arrangements continue to be promoted in the marketplace for legal services, giving the firms who offer them a marketing edge over their competition. A fixed fee is an example of an alternative fee arrangement. Should clients be more or less appreciative if you offered them value billing with their alternative fee arrangement? How do these two concepts interrelate?
Alternative fee arrangements are all the different ways of charging a client by means other than time charging. They can include fixed fees, success fees and fees where you allow the client to adjust the bill. Anything that is not strictly time recorded billing can rightfully be called alternative. It is an alternative to time charging.
Fixed fees and success fees may or may not be value billing or pricing. Value billing is charging the client based on the value of the work done.
What is meant by the word 'value' in the term value billing? According to US consultant Ron Baker, only customers determine value, and all value is subjective, like beauty. It is in the eye of the beholder. Value pricing is also an art and a skill and as with any skill, the more you do it, the better you get, Mr Baker states.
When is an alternative fee arrangement also value billing? It is when the alternative fee arrangement is calculated or priced according to the value obtained by the client.
For example, a fixed fee that is derived from an assessment of the value to the client is value billing or value pricing. If it is derived from a calculation of the law firm's own cost base or time taken then it is not value billing. It may still be an alternative fee arrangement but it is not value billing.
In theory, value billing could even be hourly billing but only if the law firm's time charges equated to the value of the work done for the client, which is usually unlikely, except possibly in the case where the client has close control over the time spent by the law firm.
The bottom line is that value billing and alternative fee arrangements are two different concepts. Alternative fee arrangements can be derived from value pricing but they can also be derived from time-based cost calculations.
In a masterful six minute presentation (below), Jay Shepherd also makes the point that value means value to the client.
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