Productize Your Practice and Ditch the Billable Hour
“Is the Billable Hour Obsolete?, The Billable Hour Must Die, An Obituary for the Billable Hour”
These are the titles of a few recent articles declaring the billable hour dead or, if not dead, on life support. It’s not all hyperbole either, since more and more clients are demanding greater emphasis on cost containment and value. And more and more firms are trying to find ways to recapture market share lost to greater competition in the legal marketplace.
Clients are becoming more sophisticated consumers of legal services and no longer blindly accept that their lawyer is billing them fairly by the hour when the very nature of the billable hour system incentivizes lawyers to bill as many hours as possible. Thus client interests aren’t aligned with law firm compensation systems.
Meanwhile lawyers are becoming less willing to spend 3,000 hours at work in order to meet challenging 2,200 hour yearly requirements. Together, these factors have created an inhospitable environment for the billable hour. But what happens if you jettison the billable hour? How do you price and sell legal services in a way that benefits you, your client and your practice? The answer - productize your practice!
Productizing your practice is an innovative way to market and sell legal services that has nothing to do with the billable hour. To illustrate the concept, consider a car repair analogy: imagine you went to drop your car off for repairs and the mechanic not only told you there was virtually no way to estimate the actual cost, but that he’d have to work on your car as long as it took to get it perfect and then he went to great lengths to make sure you understood that he couldn’t guarantee the result?
You would never hire that mechanic! Yet lawyers expect clients to hire them under similar circumstances every day. Instead, when you drop your car at the mechanic, you describe the situation to the mechanic and he quotes a price for a specific type of repair based on your description. He doesn’t describe the process by which he will do the repair. That is, frankly, irrelevant to you. He recognizes that you care simply about achieving the desired outcome and paying the agreed upon price. Productization works much the same way and recognizes that consumers of legal services do not care about the process by which their attorney works; they care about results and receiving value for an agreed upon price. By turning an intangible service into a tangible product, lawyers make themselves easier to do business with. The legal profession has traditionally been reluctant to embrace any perceived commoditization of legal services. Productization is something entirely different. Whereas commoditization is the process of a product or service becoming indistinguishable from similar products or services in the eyes of the consumer, productization is the process of creating a unique bundle of services which provide a turnkey solution to a specific issue that is easy to market and sell at a specific price. Productization can combine different practice areas, and can even encompass non-legal service providers in certain contexts, which greatly expands the potential universe of customers and marketing opportunities. Whether it is intended as a low price-point product used to bring in new clients or a sophisticated legal product designed to capture a specific market, the ultimate goal of productization is create an innovative way to distinguish your practice from your competitors and make it easier for clients, who are used to buying products in every other aspect of their lives, to hire you.
Productization provides many advantages for lawyers, firms and clients. Given that alternative fee arrangements, which include fixed or capped fee arrangements, have nearly quadrupled in the last 10 years, lawyers who find ways to productize their services are well positioned to respond to this emerging market. In addition to gaining a competitive advantage over other firms who haven’t embraced fixed-fee pricing, productization frees lawyers from a 24-hour cap on their “inventory” as they are no longer limited by the number of hours they can bill and instead can price their services according to value delivered. Having a marquee product can help establish a lawyer as the expert in a particular field. Productization also encourages greater collaboration and cross-selling since often the most effective legal products are multi-disciplinary. Focusing on delivering a specific outcome also enables lawyers to deepen their client relationships as the inherent tension in the billable hour relationship is gone and lawyers feel freer to spend the time necessary to truly understand their client’s needs. Priced and executed correctly, the right product can be an instrumental way to bring new clients into the firm and create opportunities for additional legal work down the road. Productization also has advantages for law firms beyond simply providing a competitive edge in the marketplace. Firms have developed products that incorporate a blended rate in order to enable them to use the product as a training ground for associates. In addition, as most firms are already supporting technology infrastructures, creating products that can make use of that technology to enhance the delivery of legal services to their clients allows the firm to leverage their existing technology investment for greater returns. Finally, when large clients are making more and more specific pricing and delivery demands on their service providers, productization is a logical avenue to meet those demands and retain important clients.
The first step towards developing a product requires careful consideration of your strengths and the needs of the market you serve. Reviewing past matters where value greatly exceeded the price charged is one way to identify areas ripe for productization. Another way to develop the right product for your clients is to assess the market and look for existing gaps or opportunities that are either
recurring, required or requested:
Recurring matters would be engagements that are routine, have relatively predictable outcomes and standard processes that can be easily priced on a per-transaction basis. Examples of recurring matters might be loan closings for a commercial lender or ERISA audits for a large company. These types of products will typically look like traditional fixed-fee arrangements.
Required matters are those services which are required, whether by statute, regulation or industry standards, on a regular basis for a specific industry or class of client. A tax guide or UCC-filing system are examples of the types of required matters that can productized. These products are typically good candidates for technological innovation and can even incorporate annual subscriptions for continuing revenue streams.
Requested matters are comprised of distinct services that tend to be requested sequentially or concurrently and which can be packaged together as a single solution for a group of related problems. For example, the sale of a family-owned business might require a purchase agreement for the business, a concurrent real estate transaction with environmental considerations and tax and estate planning for the selling family members before and after the transaction. Productizing a “Family-Owned Business Sale” would enable you to position your firm as the expert for these types of transactions, require collaboration and cross-selling among different practice groups in the firm, and create continuing client relationships long after the sale transaction is completed.
The next step in successfully productizing your practice requires close attention to the details of the product. Carefully delineating the scope and parameters of the service to be provided is integral to properly pricing the products and creating clear expectations on behalf of the client and all the lawyers involved in the product. It is important to consider any ethical and/or IP ownership issues that might arise in the development, marketing and sales of your product (especially if the product has an automated or technical aspect to it). Establishing “progress markers” and predetermined criteria for price adjustments at specific points in the transaction can be a useful way to periodically review the progress of a matter and the profitability of the pricing. This will also ensure that neither the client nor the firm encounter any surprises which might otherwise damage their relationship. As mentioned before, cross-selling and collaboration are key to successful productization so it is important to educate and engage firm members on the features of the product and how to sell it. When you collaborate on a product not only do the opportunities to cross-sell the product increase, but it also ensures that no single lawyer bears the full cost of a failed product. Finally, it is important to develop well thought out sales presentations and marketing materials so that you can take your product to market and monetize what you’ve worked so hard to productize.
Although the death of the billable hour has been foretold for a long time, today’s legal landscape is hastening its demise like never before. Increased competition and greater price sensitivity by increasingly sophisticated clients demands that lawyers find new ways to go to market with their services. The end of the billable hour can be the beginning of a new approach to delivering legal services to your clients that makes you easier to do business with. With productization you can innovate your practice and gain a competitive advantage. What aspect of your practice would lend itself to productization? It is well worth the time and effort to make productization a part of your practice.
About the Author
As a business lawyer who specialized in Mergers and Acquisitions, Private Equity and Securities, Heidi Simmons Ryan spent many years working at law firms of all sizes and cultures, from a boutique law office to an AmLaw 200 Wall Street firm.
Having witnessed firsthand how a collaborative, skill-enhancing growth culture can lead a firm and its attorneys to greatness, Heidi now devotes herself to helping firms and attorneys create this culture for themselves.
As Chief Operating Officer of Maraia & Associates, Heidi is committed to our mission of helping attorneys achieve individual and organizational success in networking, business development and creating long-term, authentic client relationships. Maraia & Associates has been helping professionals become rainmakers for over 25 years.
Using the Maraia Method®, as explained in Rainmaking Made Simple and Relationships Are Everything, written by founder Mark Maraia, Maraia & Associates teaches the invaluable skill of building relationships.