How I Learned to Stop Worrying and Love AFAs

Skeptical Law Firm: Oh no… you want to talk about AFAs, again? We have clients who talk about AFAs all the time.

The Mad Clientist: I hate to break it to you: AFAs are not going away. Corporate counsel love the idea of AFAs—in 2013, spending under alternative fees rose to $13.1 billion, up 6.5% from 2012.

AFAs force law firms to be predictable in their billing, flexible in their approaches, and creative in the solutions they provide to clients.

Skeptical Law Firm: I hear you and agree, but like I said, we’ve had clients demand we use AFAs before. In the end, we couldn’t make it work for our firm and it didn’t really drive any new business.

The Mad Clientist: You’re playing defense. If you institute an AFA under pressure from the client, all you’ve done is conducted a rate negotiation under the guise of “using AFAs.” You’re reacting to the client’s demand, not establishing an arrangement on your terms. You need to be on offense.

Here's a game plan to get you started:

1.  Work smart

This is the time to find smarter ways to get the work done.

  • Delegate more.
  • Question the value every task brings in helping you achieve your goal. You can probably cut 15% to 20% of the work steps if you really needed to—and now you may need to.
  • Anticipate—and automate. While complex work is ideal, routine work is unavoidable…use this to your advantage. Prepare an online repository of commonly used forms and filings. Work with IT to find a solution for automatically filling the forms out. Prepare checklists to guide less experienced (read: cheaper) attorneys through routine processes.
  • Track EVERY cost. In the restaurant business, everything is accounted for in the final price of your meal: the food, the chef’s salary, the utility bills, the aprons. AFAs can be profitable, once you know the true cost of working on a matter.

2.  Understand current market pricing

What’s the going rate for your title and practice? What are clients willing to pay? Use industry benchmarks, billing benchmarks, understand what other firms charge and what similar companies pay to give you an objective measure of where a fair price lives.

3.  Craft your alternative fee with the client

Ask your client what the total cost they have in mind for a matter. I assure you, they have a number in their head (whether or not they share it with you is another issue). If they don’t have a number in mind, help them get to one. Start talking about what drives costs, possible scenarios which could impact budget, how you plan to staff a matter. You are setting your client’s expectations and building a stronger relationship. Clients report almost all discussions about AFAs are helpful, productive and drive a better outcome—and what’s good for your client is good for you. 

4.  Figure it out—fast

Sometimes the client jumps the gun and starts a conversation about AFAs before you can. You are forced to find the solution as you go. If your largest client demands an AFA, there’s a good argument for you to consider it lest you lose the client. The long-term relationship depends on your ability to adapt and deliver.

My final tip: Do it first. The next time you start talking about a new matter with a client, provide them with a billing structure tailored to meet their needs…not your rate table. Playing the offense puts you in the driver’s seat to craft an AFA to benefit the client—and your firm.

Skeptical Law Firm: Great plan, but…

The Mad Clientist: Let me stop you there, did I mention 22% of law firms report higher profits using AFAs?

MBR