10 Jan Costs disclosure beyond the LPA: the 10 commandments

Is there more to being a good driver than knowing the Qld road rules? Is there more to being a good cricketer than the 42 laws of cricket?

Of course there is. The actual ‘rules’ are just a starting point, and really quite a low bar. As well as rules there are skills, technique, decision-making, mindset and self-discipline, commitment to self-improvement and more. With cricket you need to know where your off stump is, play with your head over the ball, keep a straight bat, know how the field is set etc.

So why do so many solicitors simply treat costs communication as a rules/compliance issue and no more? Effective costs disclosure is critical to client relationships, retention and referrals, cash flow, sales conversion, pricing, productivity and profitability. I would go out on a limb here and say – with good data and justification – that effective costs disclosure is a more critical driver of practice success than superior legal expertise. (Discuss!)

With costs communication, many solicitors struggle to get much higher than the compliance bar, and poor practices abound, even in successful, well-respected practices.

The 10 commandments

Here are my 10 commandments for effective costs disclosure. and please note that this is really just addressing the initial discussion and paperwork: there is sooooo much more to discuss in terms of skills, decision-making and pricing approaches. Some of these could be addressed in discussion rather than in the paperwork, but put yourself in the client’s shoes before dismissing these as being too much bother. Yes, the below will cost some time, but that cost could easily be recaptured from the benefits to pricing, productivity, recovery rates and more.

1. No ‘care and con’: Not just because the LSC dislikes it but because your clients dislike it. It’s a con! If you feel your work is worth more, then charge more, upfront and transparently, by either increasing your rates, increasing your estimate or charging a higher fixed fee. You should be able to anticipate at the outset if the work is worth more and sell the value of this to the client.
2. No % admin fee: Many practices are in the habit of charging a small surcharge (3%?) on top of their hourly rates to cover various administration costs. Yes, this is compliant in most circumstances, provided it is disclosed, but it really is counterproductive. Clients don’t like seeing it. By sending a clear message that you are looking for every opportunity to charge a little bit more, you reduce pricing trust and increase pricing sensitivity – leading to the querying of bills and push-back. If you want to charge 3% more, then increase your rates by 3% and justify/sell this rate to your client.
3. No small service charges (photocopying): As with the above, any small charges will frustrate the client and send the message that you are looking for every opportunity to charge more, increasing price and bill sensitivity. Look to absorb small charges into slightly higher rates instead.
4. Scope specific to client and matter: Ditch those generic scopes of the work the practice can/might do. Provide a scope of work specific to the client and matter so that the client is then able to compare an estimate to the specific work and assess its value. Solicitors like providing broad scopes as they believe it justifies further work without the need for costs updates. The client, however, needs to clearly understand what they are paying for, at each stage of the matter.
5. Define client objectives and communicate value: Reading costs disclosure documentation is a very negative experience for clients. 10 (or 20?) pages of ass-covering legalese with a nasty $ figure on page 3. Where are the positives for the client? As well as including a specific scope of work, provide clarity on how this work will benefit the client. What risks will it protect them from? How will it improve their chances of a favourable outcome? Again, tell them what they are paying for.
6. Discuss scope of outcomes: Ultimately, clients are paying for a more favourable outcome, so communicate the value and relative likelihoods (in % terms) of different outcomes. Many solicitors understandably don’t want to be held accountable for early guestimates, but you will often have a better idea than the client and it is only reasonable to share this. Again, the client needs to understand what they are paying for in order to feel good about the fees.
7. If estimate range, not too broad: An estimate range where the high limit is four times the lower limit is of limited use to the client and just smacks of a lack of solicitor accountability. Aim for an upper limit that is around 50% higher than lower limit. If the matter is too complex for that, map out some different matter scenarios, each with its own estimate. Share your experience with the client.
8. Specific, costed variables: As with the scope generally, avoid the generic variables and highlight the factors that will impact costs for that specific client and matter. Provide a % or $ estimate for each variable. The more information you provide on variables, the more your bill is likely to be consistent with your initial disclosure.
9. Offer choice and collaborate: People don’t like take it or leave it offers, and we always feel better about a buying decision where choice is involved. Give clients a choice between YOU and YOU rather than You and someone else. Avoid assumptions about what the client needs, and what is good value – and offer alternative approaches and scoping options.
10. Ensure 80% of your bills fall within the initial estimate range: If more than 20% of your bills exceed the estimate, you are consistently under-estimating. Make this a performance management issue, combined with rule 7 above. Bills exceeding estimates is the most common cause of complaints to the LSC, but that is just the tip of the iceberg of client dissatisfaction. The problem is more often in the initial estimating than the matter management. performance management should include broad coaching and training on the skills of client interviewing and costs communication.