Cost recovery does not end by adopting nQueue, Billback, Copitrak, or any other software recovery platform. In fact, that’s where it begins.
I have seen firms with strong technology nevertheless fail to optimize their recovery through a comprehensive strategy. The firms that succeed are differentiated by their willingness to build strategy aligned with the culture of the entire firm.
These firms examine their clients and what they are willing to reimburse; they look at how their attorneys are working; and, lastly, they examine the structure of their back and middle office operations and how they should be structured to minimize expense and increase recovery.
- Develop your strategy from data, not anecdotes
A large Midwestern firm recently completed a cost recovery benchmarking study and outlined the necessary steps to implement a print and scan recovery strategy. However, when the CFO delivered the report to the management committee, the discussion turned into a roundtable of client anecdotes pushing back on particular recovery items. Instead of looking at the data — what firms were recovering, the impact of this recovery, rates and billable percentages — the firm’s management relied on anecdotes as a strategy over the data– costing this firm a potential $5.4 million per year in revenue stream.
Data is the core of an effective strategy; it helps you to build a strategy that is acceptable to the majority of clients because it is defensible (your recovery cost is in line with the market and based on your costs) and verifiable.
- Know your numbers and net realizations.
Nothing can be managed unless it is measured. Review your processes and develop firm answers to the following questions:
- What percentage of your recovery is billable?
- How much gets written off by your billing attorney?
- How much do your clients actually pay?
Many firms mistakenly believe that what they capture (billable) is approximately what is paid by the client. Unfortunately, the average amount actually collected on soft costs is in the 40% to 50% range after you net out write-offs. Having a clear understanding of your net realization allows you to build from a strong foundation.
- Adapt your cost recovery strategy to your technology
Litigation support, eDiscovery, prints and scans are all essential frontiers for cost recovery in 2016. If your firm is still only capturing copies and faxes and has not migrated to capturing prints and scans, you don’t need a cost recovery system – the cost is probably outweighing the revenue collected.
Similarly, as eDiscovery and litigation support become more central to the practice of law, firms are increasingly looking to maximize the recovery of those costs. In order to continue to invest in these areas the recovery of their costs will be critical.
- Educate your attorneys
Many firms believe that the clients are the biggest source of write-offs – only to find, upon review, that it is actually the billing attorneys who are responsible.
Firms that are successful in the cost recovery area educate their attorneys on the whys and how’s of their cost recovery strategy. Some even have a cost recovery committee that involves the attorneys in overseeing the formulation of the strategy.
You must dispel the myth that these services are part of overhead and it is not “fair” to recover these costs. It is critical that the billing attorneys know the impact of write-offs on the bottom line.
- Consider shifting to a hard cost model
Soft costs generally net out to 40-50%–hard costs (costs substantiated by an outside third party), on the other hand, usually net in the 90% range. Why the difference? Attorneys and clients are less likely to write off a charge from a third party that is backed up by an invoice.
This creates multiple opportunities. For example: Many firms have substantial space and expense tied up in duplicating centers. If I send my duplicating work offsite to a nearby third party center, open 24 hours a day/7 days a week, do I really need the large scale operation on site? I can reduce/reallocate staff, reduce equipment and space, maintain the same or perhaps better services — and get paid for it, thanks to improved cost recovery realizations.
This applies to document processing, litigation support, and records. With strategic thinking about where to recover costs, how to utilize and educate attorneys, and how to document costs, your firm can develop a successful approach to cost recovery that not only improves your bottom line – it improves how you do business.