Cost Recovery Reflections: Using Managed Services and Metrics to Evaluate Success and Plan for 2022
As the year closes and the new one begins, law firm leadership teams start to evaluate the areas of greatest success and determine where there may be room for improvement or growth in the coming year. eDiscovery directors and managers can benefit from performing similar assessments. This includes reviewing where they’ve been able to work with internal clients and identifying where there is opportunity to expand service offerings and internal business. Reflecting on past cost recovery models and evaluating metrics will help mold an even greater plan as they kick off the new year.
Key Metrics to Inform Managed Services Billing
Gather metrics that will inform future business decisions. Data to review includes which clients had the highest utilization of eDiscovery resources, those with the lowest consumption of eDiscovery services, and an analysis of revenue collection realization rates. Evaluate which clients find value in your services and their final payment rate. Are any rates getting marked down by the case teams or written off entirely? Knowing and understanding the answers to these questions can help shape the billing, positioning, and delivery of your eDiscovery services going into the coming year. Such metrics will help determine whether you are leveraging the right billing model and effectively communicating the value to internal and external clients.
Additionally, law firm managed services clients should determine if their 2021 cost recovery strategy was optimal or whether it is time to revise their approach. Firms differ in approach – from eating this cost, passing it through, or marking it up. Law firms have increasingly been looking for alternative revenue streams and – given that more are bringing these services in-house through eDiscovery managed service agreements – many have decided to turn this service into a business for their organization. Billing systems, invoicing, client engagement letters, and notifications are a few areas to consider for implementing changes this year.
Cost Recovery Models
Building the right model requires cooperation with firm leadership, practice area leaders, and finance. Implementing a cost recovery program will take time and requires educating internal clients about the benefits. Also remember that regardless of methodology selected for eDiscovery managed services cost recovery, all fees and services should be outlined clearly in the client engagement letter with acknowledgement of agreement.
Here are a few models to consider:
- Pass-through: There is no built-in measure of administrative overhead or profit. Firms simply bill clients for the direct costs associated with their managed service subscription allocated for that matter.
- Billable Hours: Since almost all firm clients are accustomed to this model, it is the most common for clients to embrace. Firms can charge an hourly rate for the personal time associated with conducting eDiscovery related services – which will vary based on skill level, services, and sometimes the geographic region.
- Hosting: This is another common model because it mirrors how many service and software providers bill their clients by charging a per unit rate for each GB that is hosted for matters monthly. A hidden benefit is that clients are eager to have data taken offline and archived to near line storage once a matter has concluded. Hosting can also be used in conjunction with billable hours to further increase eDiscovery profitability.
- Per Unit Billing: Law firms will charge all work conducted for eDiscovery services (manual and technology-enabled) across the lifecycle of a matter. Just like with an eDiscovery service provider, this can include hourly billing project management and analyst time coupled with per GB charges assigned by the firm for processing, analytics, hosting, and productions. While this can be very profitable, it generally comes with a higher level of scrutiny from both internal and external clients.
- Alternative Billing Models: Instead of traditional hourly and per unit billing, creating packages and flat fee billing or subscriptions may be optimal. Being aware of upfront costs increases client satisfaction with such open-ended models. This has proven effective within contingency practice areas like insurance and subrogation.
When selecting or working with an eDiscovery managed services provider, choose one that can work with your firm through these various models or tailor models to fit the firm’s practice areas. Experience and expertise in simplifying and streamlining the client invoice process is a key feature in a provider. It is best practice to itemize each activity separately so the client clearly understands the work performed. Also consider which technology a provider employs to give the firm a competitive advantage in the marketplace.
Kicking off the year with reflection and planning will help you consider how you approach these components of your eDiscovery strategy and assess whether changes are needed for the future.
By Richard Pachella, Solutions Architect. Rich is a solutions architect in the eDiscovery managed services and legal solutions group with over 20 years’ experience in the eDiscovery space. He specializes in developing efficient, cost-effective electronic discovery workflow strategies that involve multiple discovery scenarios in complex litigation and regulatory matters.