Alternative Fees Hit a Wall, Hard

The most successful alternative fee arrangements share 5 traits. They are:

• • Clear as a bell
  • Easy to negotiate
  • Happened quickly
  • Characterized by the highest trust levels
  • Show obvious benefit

These traits are a lot harder to find as both law firms and corporate counsel navigate their current worlds. As of now, only 48.7% of clients report using an AFA. Last year (June of 2020) — 70% of clients reported using AFAs. Here’s why:

• • Turnover in the corporate counsel’s office created a discontinuity in prior AFAs — making it difficult to build on the past
  • Clients are finding it harder to get a deal as law firms are less flexible due to the strong demand for their services
  • Relationship partners are taking more time to get approvals from their firm’s leadership to finalize an AFA — just as clients want to move faster than ever before
  • Clients don’t have the time to negotiate a new alternative fee arrangement
  • A surging caseload means clients want more benefits than ever before to justify the time and effort they spend on them

While the number of clients using AFAs took a hit, almost half of all clients are still using them. They see savings in total cost and time, and believe their law firms are more focused on their goals. All significant benefits.

AFAs offer these substantial benefits AND create deeper more enduring relationships. But while they are harder to develop, they offer more short- and long-term benefits for law firms and clients.

Your challenge is to learn which of your clients want and like AFAs — as well as which clients want to learn about alternative fees. Not offering an AFA to clients who want them is putting an upper boundary on where your relationship can go. Offering an AFA to clients with little interest does no harm — and you may get extra credit for being innovative. In short, offering an AFA has little risk but a big upside.

You can learn the best practices and strategies for AFAs here.