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Friday, May 12, 2006

Further "alternative" billing options

Adam Smith, Esq. has an interesting post here about McKinsey's billing model and possible application to law firms.

Here's the gist of their model:

When a client asks McKinsey for help on something, McKinsey assesses the challenge and responds (hypothetically): "Great; that will take a small team four months, so expect it to cost $880,000." The client decides whether that's a valuable economic proposition, and assuming they give the green light, McKinsey goes to work.

One of three things now happens:

1. It indeed takes a small team four months, and the analysis/report/recommendation is delivered as promised.

2. It turns out to be simpler than McKinsey thought, so they report after two months, "We think we're done; we'd like to show you what we have, and if you agree, we've stopped the clock."

3. It turns out to be more complex than McKinsey thought, so they report after (say) two months, "There's more to this than first appeared (if we're to deal with it in a fashion commensurate with our standards), and we now think it will take the team eight months. Would you like us to proceed, or to call it off?"

Are you giving clients an upfront estimate? Are you capping fees? To me even the billable hour with some upfront guidance or fee-capping isn't bad because the client has an idea of the costs up front.

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