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My law firm pays the same amount for LexisNexis online research every month. For a fixed price, we get unlimited access to the caselaw and statutes that we use in our practice. Now don’t get me started on the absurdity of paying money for free, public-domain, governmental content; that’s a topic for a different post. Instead, let’s talk about how we handle this expense.
Unlike many firms, we don’t pass this cost along to our clients. For one thing, it’s impractical to do so. Who wants to bother with dividing up the total monthly nut for all our Lexis research and then apportioning it by client? What if we reuse research originally done for one client in another client’s case? Who pays?
Who cares?
Online research is overhead. It’s the cost of doing business as a modern law firm. We don’t apportion our rent, insurance, taxes, coffee, or legal pads (actually, who even uses legal-sized legal pads anymore — it’s an eight-and-a-half-by-eleven world, kids). Yes, it’s possible that in a month where we do a ton of research for one massive case and an unusually small amount of research for all our other cases, it could seem fair and appropriate to have the research-heavy client bear the expense of the legal research. But why would we? Again: I’m not going to have that client pay its “fair share” of rent for that month. So why is online research different?
It’s not as if my online-research expenses go up as a result of this heavier usage. As I mentioned, I negotiated a fixed fee with LexisNexis. (And your firm should, too, unless you’re too ill informed to understand the value of your monthly legal research. In which case, get better informed.) If I do a ton more research in June than in May, my expense isn’t going to go up. So why should I bother to “pass along” (or worse, pass along and mark up) these costs to the client. Overhead is overhead.
My costs are my costs. They don’t change much month to month. I pay our rent, payroll, insurance, taxes, fees, supply costs, and so forth every month, and it comes out about the same each time. This is the cost of doing business, and as long as we can bring in enough revenue to cover it, then we’ll remain in business.
Which brings me to associates and their time.
Why do law firms feel the need to “pass along” the cost of the associates? How are associates any different from LexisNexis or coffee filters or photocopy toner? Most law firms pay their associates an annual salary, divided up into monthly, semimonthly, or biweekly pay periods. As with LexisNexis, insurance, and coffee filters, the firm knows what its monthly payroll nut is going to be. Whether they work harder or less hard, for one client or fifteen clients, the associates’ pay isn’t going to change from month to month. The law firm’s cost isn’t going to change either. So why feel the need to apportion this cost to clients?
Associates are overhead. Just like coffee filters.
(Partners are too, but that gets more complicated. Let’s stick with associates for now. And coffee filters.)
Law firms don’t apportion and pass along their rent, insurance, taxes, coffee-filter expenses, or fancy-artwork costs to clients. Why not? Because it’s all overhead, and clients wouldn’t tolerate it. Send a client a bill for some portion of your month’s rent and see what kind of reaction you get. You’ll have clients marching in with rulers and floor plans to make sure they’re not getting ripped off. (That’s not actually true; the clients would simply fire you.)
So why do they tolerate it with associates’ time? Habit. And a sense that they have no other choice.
Now folks at other law firms will whine that they need to know how profitable an associate’s work is, and how profitable a particular matter or client is. Without tracking and billing for time, they can’t possibly tell.
Nonsense. Take an accounting class. Profit is revenue minus expenses. The question is whether the firm is profitable, not whether an associate or a client is profitable. The relevant question for a client is whether you’re delivering enough value to the client to justify the best price they would pay. The relevant question for an associate is whether he or she does good work for your clients.
The whining continues: But if we don’t track associates’ time, how do we know if they’re working?
After your accounting class, take a management class. You know by managing your associates.
Bottom line: Overhead is overhead. Clients don’t want to pay for overhead.
They want to pay for value.
