A survey we conducted last year found law firms that discount have more past due clients. What if law firms didn’t discount – but afforded the opportunity to clients to write down invoices as they see fit?
Enter the client value guarantee, which Adam Smith, Esq. points out many will think “is a hare-brained idea.” The legal economic consultancy describes a client value guarantee as “meaning simply that you would offer some clients a guarantee from your firm that if they feel they haven’t received value from you over the course of a representation, they don’t need to pay your bill as submitted.”
The article lays out a number of pros and cons including:
Con: Are you kidding? How much is this going to cost us?
Pro: Actually, the data shows that firms offering this see clients taking back around 1% of their total fees: Which is not going to kill us, in the larger scheme of things, and which we might decide is an amount worth our investing in for what we’ll learn about ‘value.’
On each invoice we give our clients the opportunity to adjust the amount of the invoice to reflect their opinion of the value they received. No questions asked. We trust our clients that much.
On each bill, we include our agreed upon fee. We also provide you a space to make any adjustment you feel is needed. It really is that simple.
We followed up with one advocate of client value guarantees – Patrick Lamb who notes his firm implemented this program in 2008 – with a few questions. He credits Ralph Palumbo at the Summit Law Group as the “origin of the idea,” but also notes the Valorem Law Group has seen tremendous success.
“Our realization rate is substantially greater than 100%, since clients frequently give us bonuses for results, many times not previously discussed. These could be considered VAL adjustments, but we don’t look at them that way,” he wrote in an email.
1. What was the trigger – the epiphany – for developing this client value guarantee?
“We chose our name (Valorem is Latin for “value”) because the delivery of value was our core value. Value has to be determined by the client. How else does the client make and reflect its value judgment?”
2. How did clients react (in 2008 or even now) when they first learn about this?
“Those clients who have commented like the feeling of being empowered, and they believe it makes us more conscious of what we do for them.”
3. Do clients use it?
“In almost 8 years, twice to reduce a fee and once to increase it.”
4. Do you think it’s a competitive advantage?
“Huge, but part of a constellation of things that differentiate us. But everyone sees it as part of the overriding commitment to delivering value as the client sees it.”
5. What advice would you offer to an attorney that wants a firm to develop a similar program, but has push back from other firm attorneys?
“The truth of the matter is that clients have absolute power over what they pay. If a client calls and says I won’t pay x dollars of your bill and you want to keep them as a client, you make an adjustment. If you don’t want to make an adjustment, you may not get paid and you will lose the client. This value adjustment line is a canary in the coal mine and is a very cheap way to build better client relationships.”
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As amazing as Mr. Lamb’s answers are, there is a cautionary tale to implementing a client value guarantee. The post on Adam Smith, Esq. sums it up neatly at the end (it’s well worth reading in its entirety):
“First, even for those of us of the most optimistic stripe, this can be handing your client your sword—and your shield while you’re at it. If you want to try this, experiment with only with the most trusted and trustworthy of clients, and you might want to think twice about them.”
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