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Unlocking the Hidden Impact: How 'Small' Billing Discounts Shape Your Firm's Financial Destiny

How discounts affect firm financial destinty
Billing discounts

Billing Discounts. Over the course of my extensive 30-plus years in the legal landscape, one phrase has echoed relentlessly: "It's only a 10% discount" or "Just a 20% discount." It's a

refrain that's hard to forget. I recall a time when practically every attorney in the T&E practice group I worked with insisted on a flat 20% discount. Try as I might, shifting that perception proved challenging.

Here's what many attorneys tend to overlook: a 10 or 20-percent discount carries a far more impactful weight on their financials than they might realize. Let's delve into the math. Imagine your firm maintains a healthy profit margin of 35%. This means that 65% of every dollar earned goes into covering various operational expenses – salaries, leases, and the like.

Now, reconsider the seemingly modest 10 or 20-percent discount. Surprisingly, a 10% discount translates to almost 29% of your profit (10% divided by 35% equals 28.6%). A 20% discount becomes a whopping 57% of your profit (20% divided by 35% equals 57.1%). And remember, this doesn't even account for any further discounts that might have been applied at the case's outset. It dawned on me that most of the attorneys I collaborated with were unaware of this impact. To them, it was merely 10% off a total, not a big deal. When I highlighted this perspective, the result was often a shift towards more conservative discounting practices.

Cosmetic Write-offs. My journey has taught me that several attorneys tend to trim fees solely for aesthetic reasons. Take a scenario where a prebill sums up to $55,750. Instead of preserving the value, a billing attorney might curtail it to $50,000 for the sake of appearance. If a reduction is necessary, consider rounding it off from figures like $55,700 or $55,000.

Now, I want to clarify one thing: I'm not an advocate for overcharging clients beyond the true value of services rendered. On some occasions, I even question if the reduction goes far enough. In light of my commitment to maximizing the firm's revenue, I once suggested to a partner that he wasn't cutting enough from a bill. He quipped, "Who are you, and what have you done with Rick?"

More often than not, the root cause boils down to the fear of losing clients or a lack of confidence in the work delivered – or sometimes, it's a matter of not fully comprehending the implications of their actions. This lack of confidence often leads to unnecessary discounting. Curiously, a billing attorney can inadvertently condition clients to expect these reductions, inadvertently spiraling into a never-ending cycle.

Stay tuned for more insights.

About the Author:

Rick Wolf is a Law Firm and Business Consultant at CSR, with over 30 years of experience in the field. His expertise lies in uncovering the financial intricacies that impact law firms and offering strategic solutions for growth and profitability.

Ready to uncover the hidden dynamics that shape your firm's financial success?

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