Con: Are you kidding? How much is this going to cost us?
Pro: Actually, the data shows that firms offering this see clients taking back around 1% of their total fees: Which is not going to kill us, in the larger scheme of things, and which we might decide is an amount worth our investing in for what we’ll learn about ‘value.’
The available data comes from businesses as diverse as industrial strapping to IT consulting, but has its center of gravity in the range of 0.0025 to 0.0175, or 0.25% to 1.75%. This hardly rises to the level of life-threatening, especially when put in the context of write-offs and write-downs. According to Dr. Christopher Hart, a former professor at Cornell and Harvard Business School, “companies notoriously overestimate payouts by a factor of 10x to 20x.”
Here’s an example from Christopher Marston, CEO of Exemplar Law, which has had such a guarantee place since its founding:
As far as payouts, Marston says “I’ve had two clients in ten years invoke our guarantee. One was a client that we shouldn’t have taken on in the first place – the fit wasn’t there. The second was a new client we were working with for the first time. We ended up issuing them a partial refund – and they stayed a client.”
Con: We can’t just leave it up to clients to say what they think; it’s in their self-interest to get a break on our fees any way they can.
Pro: A ‘guarantee’ worth its name has to be the client’s to invoke or not; if we start debating with them, we might as well not do it.
Con: If word gets out, our other clients are going to start demanding it.
Pro: Every one of our clients has their own preferred customers; it’s standard operating procedure. We can tell them it’s not available to everyone, plain and simple. But more important, what are you afraid of? Aren’t you confident our firm provides ‘value’ to clients of all kinds all the time?
Con: Why would we ever knowingly assume vulnerability and risk? Besides, who’s done this? Maybe two or three firms? I don’t think so.
Pro: In reality, making us vulnerable to clients builds trust; and we won’t offer it to greedy, opportunistic clients. As for not-alot-of-firms having done it, how better to differentiate ourselves in today’s environment of a battle for market share? Given the choice between two highly comparable RFP submissions, ours with a value guarantee and Firm X’s without, which is the client likely to prefer?
This last point is worth emphasizing because it may be the emotional (vs. the business) fulcrum around which the internal debate revolves. Proponents can say, essentially, we have nothing to fear. Our firm proudly proclaims the desideratum, and lives the reality, of providing superior client value—does it not? Detractors, seeing themselves as realists or cynics, will argue that’s not exactly true 100% of the time—and that clients know it and will exploit it. This boils down to “We’re promising something we already deliver” vs. “We’re staking a claim to an impossible aspiration.”
Second: The Dynamics
This is where the real power of offering a value guarantee may come in; it can (it certainly should) change behavior. It’s a category error of the first order to think of it as a business development and marketing tool; rather it’s a catalyst to re-examine how your firm conceives and delivers value to clients to begin with—and to begin to re-mold your internal behavior to consistently deliver what you promise or aspire to.
Bruce–as Jeff noted, Valorem has been doing this since we opened our doors in 2008. Every single invoice we have ever sent has allowed the clients to mark the amount due up or down so they were comfortable that the amount they chose to pay reflected the value we had delivered. I’ve written about this for years trying to get other firms to consider it, especially since clients already effectively have this power, at least if you want to keep representing them. Few firms have put their toe in the water. But you have to be either in or out–there is no way to explain to one client why you are not offering this to them but are to another client.
I agree with Patrick above. You either offer it to everyone, or not at all. There other inducements you can (and do) selectively offer the “inner circle” clients. A guarantee does not need to be in the toolbox with that type of client anyway. Those clients should already be getting the best service you have to offer. Or they don’t remain that type of client very long in a low-growth environment.
As someone who has seen this type of thing in action, not sure it is much of a competitive advantage with sophisticated clients to be honest. I don’t think I ever heard a client bring it up once.
I can’t speak more highly of written service guarantees.
I wrote the first one, for Coffield Ungaretti & Harris, back in 1994, when I was the firm’s Marketing Partner. Admittedly, in part it’s turning lemons into lemonade. That is, if clients don’t think they only received 80 cents of value out of the dollar you billed them, they’re not paying you the full dollar anyway — that’s basically just your Realization Rate.
But if you take the high road, encourage them to tell you when they’re dissatisfied, you have the opportunity to fix the problem to their satisfaction. If you didn’t, they have ample opportunity to choose a different firm the next time.
We found very clearly that clients sincerely appreciate the offer and take the guarantee seriously. Sophisticated clients aren’t looking to screw their trusted professionals for a few bucks. You wouldn’t seek to screw your doctor who offered a sincerely relationship guarantee. You just want (great work, and) great service.
We’ve helped a number of other firms offer various types of guarantees in the past couple decades, and if they’re serious offers to improve a firm’s client relationships, clients take them seriously too.
I agree that it is an all or nothing approach, which I think is what terrifies most firms. The prospect of taking a large hit is one they are uncomfortable addressing up front. Despite the reality that after the fact write offs are common place.
What this approach does is move the conversation to a pre invoice stage (where it is collaborative) and away from the post invoice stage (where it is confrontational). If a client called after the bill was received and said he wanted 10% off I don’t know many lawyers who would say no.
The worst case scenario is you find out who your bad clients are and can exit those relationships. And you find out who your sub standard lawyers are and can address that issue also.
While it may not be designed as such I think it is an outstanding business development tool.