Clients Who Don’t Understand Value

Over the past three years we have had two clients who we have asked to find other representation.  Both of these clients could not or would not grasp the concept of value billing.  In both cases, the clients wanted to know how many hours were spent and the billing rate of the lawyers involved.  In each instance, they believed that, because of our expertise, it shouldn’t have taken us very long to analyze the background information and generate a threat letter.

In both instances, the early email exchanges made it clear that these clients were going to use our expertise against us.  Their view was that they ought to receive our expertise at no charge.  Both instances involved a low level $1,200.00 threat letter.  This involved obtaining all the background information from the client, doing independent research and generating a five page threat letter with dozens of pages of attachment. 

In each instance, the deliverables were specifically defined and approved by the client ahead of time.  In each instance, every deliverable was achieved.  In both instances, the client did not receive the ultimate result they were seeking.  In the latest incident, a cybersquatter had provided all false registrant information.  Thus, the threat letter was not received by either certified mail and/or email.  The client’s position was that since the letter was not received, no value had been provided.  As we began discussing the matter with the client, all of the client’s communication focused around the number of hours involved.  The client erroneously assumed that the firm had not done all of its independent research, had worked diligently to try and identify false information.  In fact, the firm had taken on an investigation of a separate domain name under a different registrant at the client’s request in order to develop a tie between the two domains at the registrant level.  Despite all of that, the fact that service had not been achieved, an issue common in the domain area and of course beyond anyone’s control, was driving the client batty. 

Despite the fact that value and deliverables had been specifically defined and approved up-front, it became very clear that the client’s idea of value was not on pre-approved deliverables but that a single letter would result in immediate relief to the client.  The domain name would be voluntarily transferred immediately upon the receipt of the letter with little or no further activity.  In short, all the red flags were pointing to a mismatch between our services and the client.  We returned the client’s fee despite having provided all of the deliverables and provided recommendations to two other law firms who specialize in the particular area of law. 

What the client failed to realize is they had received tremendous value despite the lack of service (which would be inevitable once additional project phases were completed and the registrant was identified):

1. The five page threat letter would eventually be used with the registrant of the domain, or against the competitor which the client would ultimately reuse it for if a link was established;

2. The firm’s expertise in this area of law which allowed for a threat letter to be generated the same day as the project start date with all of the background facts and relevant law included;

3. The fact that our firm didn’t have to do any independent research to know exactly what the client’s rights were and the appropriate course of action on behalf of the client;

4. The flat fee quote itself.  This same project completed by another hourly law firm would have no doubt cost two to four times more than the flat fee our firm charged.  This is because of two primary factors.  The first is that most firms would not have the background and expertise to immediately act on the matter.  Second factor is that the client came to us in “emergency mode” seeking immediate response and results, as well as extending the project beyond its original definition.  Hourly lawyers love clients in this situation.  This client was so outranged by the cybersquatting, that an hourly billing lawyer would have had lots of different directions to go and possible hours to accumulate.

5. The fact that the deliverables were defined.  Again, an hourly billing lawyer could have taken the matter in many different directions almost immediately.  The opportunity for the lawyer without and project definition or cap on spending could have easily gotten to five or eight thousand dollars within a couple of days of work.  Defining deliverables takes risk off of the client that the number will simply grow and grow.

6. The fact that as in any phase one project, you are merely building a foundation for the future phases.  Our project specifically included negotiations or drafting of any documents assuming that the cybersquatter was willing to turn over the domains.  And the real value came from tying the particular domain to the client’s competitor.  The real value to the client, worth a lot of money, would be data tying the competitor to the infringing domain.  After sending the client on their way, we went ahead and completed what would have been phase two of the project, seeking to tie the competitor with the domain.  We have access to tools that few other attorneys, even those specializing in this area, can utilize.  We went ahead and spent the money required to access the database to see if we could find.  We actually found we actually found the smoking gun data to tie the domain and the competitor together.  Of course, we smile knowing that the client may never obtain that information, even if they spend thousands or tens of thousands of dollars with another domain specialist.

A law firm should never hesitate to monitor “red flag clients”, return their money even when you’ve delivered each and every item and send that client on their way.  I’ve always believed that law firms make their money by insuring they receive a solid match with clients.  Stated the other way, a law firm can lose a lot of money really quickly on a client that doesn’t understand and realize the value they are being provided.  The above client will in all likelihood spend significantly more money on an hourly fee lawyer and may never achieve anything close to the results our firm is uniquely positioned to deliver.  That is unfortunate for the client.  However, you can’t have it both ways.  One of the benefits of value billing is that the client knows exactly what they are going to pay for a particular set of deliverables.  Capping your exposure is a huge benefit over the hourly billing model.  Clients that want to have their cake and eat it to should suffer the hourly bill over the longer period only then will they understand and appreciate value billing.

Comments

[Nick G]

I've spoken with a friend about this idea of Value-Billing, and his idea was that big companies and old fashioned people are going to be worried by this idea of a flat-fee, because of the fact that the big guys are using the hourly-model. It was evident to me that his reaction was driven by a misunderstanding for what "flat-fee" meant. Value-Billing is more than a flat-fee system, its giving control to the client, sometimes control they aren't ready for.