This article is Part 2 of a four-part series focused on subscription-based services for law firms. READ PART 1.
As a consultant who rarely bills hourly, I have had my trials and tribulations with scope development and client expectation management. I have even considered if the concept was workable. Achieving a sustainable market-fit approach has taken creativity, the patience for trial and error, and a level of flexibility in the early stages.
Our experience finds that a subscribed services approach is still considered too risky by many lawyers, but some lawyers are earnestly probing for the right approach economically and ethically. If you or your firm are considering a subscription based pricing strategy, apply the following fundamentals to increase your success chances.
Scope Development and Expectation Management
Perhaps the most difficult element to perfecting a subscribed services pricing strategy is to develop a scope of the agreement. “Scope creep” occurs when clients request additional services not covered by the agreement without also offering to pay additional fees. This can destroy profitability since most lawyers are eager to please their clients and provide these additional services without much resistance. Scope creep will be further discussed later in this section.
When a subscribed services agreement (SSA) includes a well written scope, terms and conditions, and pricing, success is more likely. It is also important to adhere to the provisions which requires discipline and excellent communication skills.
Developing a Scope: An Example
A scope of basic services included in an agreement is easy to develop. For example, your firm may agree to do the following for a client: manage human resources compliance efforts, review and support hiring and termination processes and decisions, and to oversee management training twice a year. An experienced employment lawyer can easily write an adequate agreement scope.
Under this agreement, “pressing the scope” could occur if the client requests a lawyer to participate in the termination process of an employee. Wanting to keep the client happy, the lawyer agrees. The termination process goes so smoothly that the client decides it is a good idea to have an attorney present at all difficult terminations.
When creating the initial scope, the lawyer never anticipated offering this level of service, which is often time intensive and comes with potentially more risk. And while the client is pleased in the short run, these added services quickly become an expectation and profits begin to evaporate.
If we were advising our fictional lawyer, we would recommend the following:
- Immediately analyze the agreement to determine how well the pricing fits the expanded services offered. We will address accounting issues later, but for now, assume the data exists to perform the recommended analysis. Next, determine how the additional services impact the pricing model built for the agreement.
- If the impact is material, contact the client and review the initial scope. Gain agreement that additional services are beyond the scope and offer solutions.
- Think of solutions: It is in this area that creativity is needed. For example, instead of raising the price, you may consider eliminating a service from the initial scope as an offset. You may determine that you can handle a limited number of additional instances and propose an incremental fee for every instance beyond the allotted number. Finally, you may decide that the solution is a fee increase.
In these situations, it is important that clients see an honest effort to manage the cost of the agreement. Your firm’s credibility will increase if it can propose alternative that do not involve a fee increase.
With experience, future scope agreements will anticipate potential additional service requests and inform pricing agreements.
Managing client expectations is important regardless of pricing agreement or service model. An advantage of hourly billing, although slight, is that clients receive a detailed record of the service provided on their invoices. When a subscribes services invoice only includes a line item for the monthly fee, clients may not appreciate all the work performed during the billing cycle or over the course of the agreement.
To communicate the value received under such agreements, an alternative communication process is necessary. Borrowing from the IT world, I like adaptations of the help desk ticketing systems. For example, bespoke versions of Zen Desk or Fresh Desk (several similar systems exist) can help manage client expectations and measure a firm’s service level performance. Further adaptation of these systems includes a web-based client portal process that allows clients to submit requests for legal services online.
Once initiated in the system, tracking, approval and reporting processes can occur. Depending on the type of agreement, I recommend that lawyers use these data to measure performance and communicate with clients periodically. For example, a firm may review the number of legal requests submitted during the period, the status of each request, any items that need client action, and any other items that can improve the quality of the agreement. As necessary, standard narrative case reports can supplement a metric based reporting system.
A formal process for managing client expectations is an essential part of a successful subscribed services agreement.
Check back on our blog soon to read more about subscription based legal services, including:
- Pricing (Setting Fees)
- Challenges of this type of billing model.