publication of the International Legal Technology Association
Issue link: https://epubs.iltanet.org/i/395170
As you can see from the example, the recovery is roughly the same. What are the advantages of the hard cost model? • Soft cost erosion will continue to increase • The charge to the client is 20% lower • It takes the firm out of the cost recovery business. You are just passing along what you are paying with a transparent model clients are demanding. ONE FIRM TRIES A NEW WAY A large firm in New Jersey outsourced their support services and litigation support to a large national provider. The firm was using the traditional cost recovery model to recover copies, prints and scans, as well as their litigation support costs. The recovery results were disappointing, especially for the litigation support items. In addition, with the firm determining the chargeback rates, the onsite vendor services were not priced competitively with the local vendors. The end users were getting better service and pricing from outside vendors. The solution was to separate the litigation support operation out of the outsourcing contract, structure it as a standalone transactional operation and have the onsite vendor compete with the external vendors on price and service. This forced the vendor to improve services and price them competitively. The contract was changed so that the vendor billed for all items per transaction and invoiced the firm separately. The firm passed these costs through to the client as a hard cost. The end result for the firm was a much improved litigation support operation and a vast improvement in the recovery of the costs. THE IMPACT OF EFFECTIVE COST RECOVERY The positive and concrete effect of a strategic and justifiable cost recovery program is undeniable and dramatically more effective than price reduction exercises. For instance, what is the bottom line impact of a firmwide strategic plan that increases your billable percentages by 10% versus 10% in cost reduction? Depending on the areas, it can be quite dramatic. As the table illustrates, a 10% reduction in costs on an item that has a 70% billable percentage will impact the bottom line by 3.3% ($7,500). However, a 10% increase in the billable percentage without a cost reduction will impact the bottom line by 10% — a 333% increase versus the reduction in costs. COST RECOVERY MAKES A DIFFERENCE The recovery of costs still plays a vital role for most law firms and continues to have significant financial impact on the bottom line. What is most important, however, is that law firm leaders recognize the new market demands for transparency. The flow of information begins with unbiased market data combined with a strategy to address the unique culture that exists for each individual firm. In so doing, firms can address cost recovery through the right methodology that will simultaneously satisfy attorneys' needs for justifiable and transparent billing with their clients and the clients' needs for the same. You'll also achieve the firm's financial and operational goals now and into the future. ILTA WHITE PAPER: OCTOBER 2014 WWW.ILTANET.ORG 47 COST RECOVERY STRATEGIES THAT WORK HARD COSTS - OVERNIGHT SERVICES CURRENT SCENARIO DECREASE COSTS BY 10% IMPROVE BILLABLE % BY 10% Spend $250,000 $225,000 $250,000 Billable % 70% 70% 80% Recovery $175,000 $157,500 $200,000 +Overhead (Non-Billable) $75,000 $67,500 $50,000 NET EFFECT ON BOTTOM LINE $7,500 $25,000 % IMPACT 3.3% 10% % INCREASE OVER A 10% PRICE DECREASE 333%