Although many law firms are enjoying increased demand, revenues and profitability, not all firms are so fortunate.  For the firms seeing a sustained slackening of demand, there is no shortage of ideas on how to combat the problem.   “Work harder,” “get out and hustle,” and “reconnect with your relationships,” are but a few of the solutions often heard.  In these transitional times, an introspective look at the basic law firm model can even occur.

Indeed, in taking stock of where they find themselves, more than a few law firm leaders may question the long-term vitality of the hourly rate model due to waning client interest in perpetuating its perceived inefficiencies. In the face of such questioning, some advisors recommend that firms respond with fixed fees or hybrid rate structures where some payment is conditioned on success. These creative ideas, however, are not for all firms.

Before a law firm replaces its hourly rate model in favor of something new, it is imperative that it analytically review its culture, its clients, its people and its short-term and long-term commitments. As it contemplates a new model, it should be inquisitive and ask at least the following five questions:

How engrained is the hourly rate model in your firm?  A firm that historically has been completely an hourly rate shop will have the biggest adjustment. In contrast, a firm that has experience with alternative fee structures will adapt more easily. If your firm is more like the former than the latter, the adjustment period will be longer and potentially more difficult. Consider taking it slow.

How well do your attorneys deal with change?  Attorneys often do not do well with change. Taking away the hourly model can take away a lawyer’s security blanket. It is important to recognize the difficulty that many attorneys will experience and develop ways to assuage their discomfort.

Can your attorneys deal with a little (or a lot of) income volatility?  In a firm traditionally using the hourly rate model, gross revenue variability often was a function of billable hours booked and bills collected. Aggressive expense management and rate increases often addressed any softness in those numbers. Some of these tools may be unavailable if alternative models are adopted. Until a firm gains experience with new models, revenue volatility gets translated to income volatility. Can your attorneys and your firm weather that kind of uncertainty?

Is the proposed change something your clients will embrace?  Presumably, many of the firm’s clients will gladly accept an approach that provides greater fee certainty and aligns the law firm’s interests with theirs. But whenever fundamental change is contemplated, it is important to be certain that the proposed change is something clients will embrace. Doing your client centered research is critical.

How strong and deep is your firm’s expertise?  In the end, a firm’s reputation and expertise is what will help it weather radical change. A strong reputation and renowned expertise will attract clients regardless of the fee model, but a fee model attuned to clients’ interests will convert that attraction into greater client demand. If the lure of your firm’s reputation and expertise is slight, the conversion from one model to another may not be a panacea.

If demand is down at your law firm, it is a problem in search of a solution. One solution is to move away from the hourly rate model. But finding a solution is more than adopting the latest trend. The right remedy depends on your culture, your people, your clients and your areas of strength. If you are tackling the decline in demand, are you asking the right questions?