One Proven Way to Make a Profit with Alternative Fee Arrangements (AFAs)

Alternative Fee Arrangements (AFAs) are increasing in prevalence and there is no question, clients recognize the benefits of structured billing. In fact, in Altman Weil’s Survey, 80 percent of nearly 800 law firms surveyed believe the transition to non-hourly billing models is a permanent shift in the industry. AFAs are here to stay.

What is it that makes AFAs a challenge? Here are five of the top reasons why AFAs give attorneys concern.

1. Financial risk and less profit
2. Difficulty pricing services
3. Quality may suffer – encourages shortcuts
4. Hard to estimate and manage time/costs
5. Pressure from competition

Pricing AFAs can be difficult because it requires a firm to first understand all the costs that go into each service. This includes document creation time, calls with clients, meetings, document reviews, data entry, consultations, and more. If a firm doesn’t have a grasp of the amount of work that goes into a service, it’s hard to really know whether the work is profitable or not.

Document Creation Challenges

How would you describe your process when it comes to creating legal documentation for your clients? Consider the following points as you review your process. Any of this sound familiar?

1. Manual process – re-use documents
2. Labor intensive
3. Error prone
4. Version control challenges
5. Commonality with language, terms, and conditions
6. Staff dependent
7. Styling and format errors
8. Lengthy document reviews

Is your process as efficient as it could be? Consider point number 6 – is your document production process heavily dependent on certain staff members? What happens if they are out sick or on vacation? Can others step in and do what they do, or is it dependent on someone’s expertise, knowledge, or skills?

And what about point 8? Do you find yourself spending a lot of time reviewing documents for errors, styling issues, and correct terms & conditions?

Why Use Document Automation?

So, what can be done to address these AFA challenges? One proven solution is document automation technology. Whether you use templates from publishers like state bar associations or LexisNexis, or if you decide to create your own templates using your law firm’s content, you can dramatically improve your abilities and make a profit. Consider the following benefits of document automation – all of which help drive efficiency and profitability within your firm, without decreasing value to your clients.

1. Increase profits, reduce costs
2. Predictable, transparent pricing
3. Value based services – not “cheap”
4. Staff productivity
5. Faster turnaround
6. Increase quality
7. Reduce review time
8. More time for higher value work
9. Consistency with styling, formatting, content
10. Increase competitiveness – additional services

How to Price AFAs

When you start using document automation, you’ll be impressed by how much your processes will improve. You can then effectively evaluate pricing for all your services. When pricing your AFAs, you need to focus on the value you provide to your clients and not just price your services on the decreased costs of your newly reduced workload. Don’t unnecessarily discount your services to make them cheap. Instead, focus on the overall value of the service that you provide and price it competitively. And be sure to keep your pricing transparent so your clients know exactly what they will receive. Sell your clients on the overall value.

Consider this Example

One of our clients is a small law firm, that specializes in LLC formations. This firm has created nearly 6,000 LLC business formations for its clients over the years and document automation technology is a key component to their success. On their website, they offer 3 tiers of pricing based on the level of service provided. They list out exactly what is offered with each of their products so that clients know what they will get with each price level.

New clients begin their engagement with the firm by first completing an online LLC formation questionnaire that collects all the necessary information the firm needs to generate the required documentation. This questionnaire makes it convenient and easy for the clients to submit their information and ensure data accuracy. The firm benefits because the data is captured electronically and then used to populate the automated document templates which then create the necessary LLC formation documents. Error-free, personalized documents are instantly produced. Attorneys can then quickly review the completed documents before reaching out to their clients.

This model has worked extremely well and helped the firm thrive over the years – even through the recession. HotDocs document automation technology makes it possible to offer high-value services cheaper than their competition. In fact, they even promote the fact that their services are less expensive than LegalZoom. Clients see immediate value and appreciate the quick turnaround and the affordable fixed-fee pricing. And, the law firm maintains high profits because they know exactly what their costs are for their services and can price accordingly. It’s a win for both the firm and their clients.

Automation & AFAs – Not Just for LLCs:

The above example illustrates success with LLC formation documents. However, document automation is such a flexible tool, that essentially any type of Microsoft Word or PDF document can be converted into a fully automated template. Here are examples of the more common types of AFAs and documents that we see law firms automate:

• Estate planning
• Wills, trusts
• Divorce forms
• Real estate law
• Bankruptcy
• Charitable planning
• Elder law
• Complaints
• Employment law
• Engagement letters
• IP law
• Personal injury
• Workers comp
• And more…