Nickel-and-diming your clients

Southwest Airlines is currently running ads making fun of its competitors for charging extra fees for checked bags, window seats, aisle seats, snacks, curbside checking in, and fuel surcharges. This is smart marketing, because it allows Southwest to differentiate itself from most other airlines. (See this article from aviation website Flightglobal.)

But it's also smart because customers hate to be nickel-and-dimed. The airlines will defend these charges — known as ancillaries — as being necessary to pass along costs to the customers who use these "extra" services. But Flightglobal reports that United Airlines expects its 2009 revenue from ancillaries to climb to $1.2 billion. That's an increase of 140% over the 2005 numbers, and a third more than 2008's take.

This concept of passing along "costs" to customers is silly. How is it that Southwest can successfully price its flights without charging for extra bags, while other airlines can't?

Now go look at your last lawyer bill. Turn to the last page, after all the arcane references to things like "Telecon with Mr. Jones in regards to same." Find where it says "Expenses," and see what you're getting charged for. Most law firms "pass along" the cost of photocopies at ten, 15, or even 25 cents a page. Faxes — who even uses faxes anymore? — will cost you a buck a page. Phone calls? Don't worry — they've kept track.

Some lawyers even try to help other lawyers learn how to better nickel-and-dime their clients, with such visionary pieces as "Using your photocopier as a firm profit center" (published in the St. Louis Daily Record) and "Tips for Including Phone Expenses in Your Client's Bill" (published by the Missouri Bar) (really). Both are written by Kansas City (Mo.) lawyer Jim Wirken, and include such pearls as:

One of these days we are going to have a computerized system that has voice recognition and you will be able to speak the client's name and the name of the matter, and that system will automatically figure out what the proper client number is and bill that client appropriately for both time and expenses.

and

Believe it or not, our photocopy machine is one of the largest profit centers in our law firm. We charge 25 cents for every photocopy.... I think you will find the philosophy about allocating expenses to those clients who are actually incurring them, instead of absorbing those expenses into your hourly rate that is to be spread over all of your clients, is very innovative.

Right. The firm of the future, indeed.

If your law firm is charging you for copies and faxes and the like, it can only mean one of three things:

1. They don't really know how to value the services they provide, and thus don't know how to price those services in a profitable way without resorting to "ancillaries" like copying charges.
2. They do it as a less-noticeable way to squeeze more money out of their clients
3. They've seen other law firms do it this way, and they don't know any better.

None of these reasons is a very good one. These costs are part of a law firm's overhead, and clients don't care about their lawyers' overhead.

Update 24 June 2009 Think nickel-and-diming your clients is bad? See what happens when companies nickel-and-dime their employees, over at Gruntled Employees.