estimating legal services cost
Legal16 October, 2018

Estimating the cost of legal services with smart software

Technological advances are making waves in the legal sector. Many painstaking tasks that would otherwise require many man hours can now be done in a matter of minutes thanks to the automation of many processes.

While legal startups are more welcoming to the changes that come about with technology, conventional lawyers have been slow to respond to digitisation. “Lawyers often oppose change, and even more so if it involves a change in technology,” says Sander Dekker, Minister of Legal Protection at the “Society and the Law” convention of the Legal Valley foundation in the Netherlands. However, given the dissemination of technology in all major processes in the legal profession, lawyers are now changing their perception about it.

A fee that reflects value

Most lawyers set fees based on their personal experience. Clients favour reliable and predictable prices than low prices. This requires careful estimation of costs to set fees that provides value to clients. Law firms are increasingly meeting this need and are experimenting with alternatives.

Jeroen Hoekstra, partner at Nineyards Law, says “in house counsels, in particular, would want to provide a budget for their legal fees. There are always circumstances that can’t be covered by an estimate, but as soon as you’ve set up a budget, you expect the others to stay within it. When I set up a budget, I do so on the basis of my experience. If various circumstances eventually change, you need to indicate this at an early stage. If you say why, and then specify the higher amount in writing, you won’t get into any trouble. Problems only arise if you go ahead without discussing the matter, and then charge more.”

The in house counsels that Hoekstra talks about often work with fixed budgets and with additional weekly, monthly or quarterly expenses. These details are important for financial departments and impact their key performance indicators (KPIs). Eric Dorrestijn, General Counsel Commercial at KPN, says “We want to have more control over these costs, and we want them to be more predictable. It also means that if there are general discount agreements, they can’t be circumvented, e.g., by increasing the number of hours. We work with law firms that are disciplined enough not to exceed our price agreements.”

Systematic cost estimation to stay ahead

Cost estimation is a vital component in new forms of legal services and is routinely applied by new start ups in the legal profession. It forms part of their tender process as a matter of course, and such firms often take it as their own liability if they exceed a given budget.

Sander Petit (from Petit, Legal and Partners) at law firm Advocaten van Oranje follows a step by step plan provided in order. He works with each client on an initial situation report, whereupon he produces an estimate on the number of hours, based on previous experience. He then submits a differentiated estimate with a range of options that carry different price tags. The cheapeast module involve, for instance, going through the key points of a contract whereas the most expensive modules is to analyse the contract in all its details.

He says,"" when quoting a fixed fee, I also determine – together with the client – the relevant parameters within which I can still handle the agreed price. Should anything unexpected come up, a new court ruling for instance, I am free to move away from the set price. I'm liable for up to 10 or 15 per cent of the budget, and anything higher than that gets passed on to the client.”

Mattijs van Andel, freelance lawyer, confirms what Petit says: “whenever a project is commissioned, I submit a budget that is based on the number of hours the project will take. If the project is more complex, we usually define the framework of the budget in terms of assumptions. But, of course, I might still exceed the budget. If the assumptions are not met, I often absorb the additional hours myself.”

Company lawyers are increasingly better prepared and can justify their arguments through the use of smart software that calculates the price of a given project. Nowadays, the general counsel tends to prefer law firms that invest in optimised processes, real time reporting and financial data that support budget and process management. The argument for automated systems in the legal profession is therefore becoming more and more compelling.

Estimating costs using practice management systems

As a legal professional, you can integrate the functions offered by smart management systems to estimate the cost of projects that will eventually allow you to have better fee arrangements with your clients. Such systems often help you implement the relevant financial agreements in your billing procedure.

  • Data storage

Practice management software handle a large amount of data to help you gain greater clarity on the areas where you, as a lawyer, spend most of your time. Once you identify activities that take consume time and those that do not require time as such, setting fees accordingly, can make fee arrangement much easier for you and your client.

  • Reporting

It also offers support in the form of reports, for example, to find out your sales turnover per activity, both for your entire workforce and for yourself. Once you submit a budget, reporting also gives you insights into the financial status of the project which you can use to create a summary of billable and unbillable hours, costs, sales and profit.

  • Summaries

You can create a summary of financial results for past projects, sorted by legal areas, or identify routine activities for which you can offer fixed fees. A summary can easily be created by dragging columns across your computer screen. You can then produce a relevant estimate in order to submit a new budget.

Providing value with the legal fees you charge not only benefits your clients but also your law firm. Your clients will pay for your expertise and ability and you will be client focued and strengthen your relationship with them while reducing inefficiencies and improving profitability.

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