Community Table: A Compensation Plan For Associate Referrals

Episode Notes

Transcript

[Music]

Intro: The Un-Billable Hour Community Table where real lawyers from all around the country with real issues they are dealing with right now meet together virtually to present their questions to Christopher T. Anderson, lawyer and law firm management consultant. New questions every episode and none of it scripted. The real conversations happen here.

Our first discussion today stems from a lawyer who wants to build a referral compensation policy for his associate.

Allan: The headline of my question is I want to build out a referral origination fee system policy for my associate that fairly compensate him for referrals and of course be fair to the firm. This is my first time calling, how would you like me to kind of set the table?

Christopher T. Anderson: Yeah, the best you can, I will just frame it up. Like what is the associate doing? What is the business? How are referrals working, et cetera?

Allan: We are a criminal defense firm where we charge all flat fees. My associates have been with me for about three years and he really is our working definition of a grinder, right? He handles probably 99% of the caseload, does a fantastic job with the clients, fantastic job with the prosecutors, gets great results, understands business elements like making sure clients have paid in full and things like that. I pay him a salary of $130,000 and up into this point we — he’s been with me like I said for about three years and he hasn’t received any referrals or otherwise done anything that would generate new business and so I haven’t had a need to create an origination fee policy, yeah I had need though I should have already had one, right? And so how this kind of came about is there’s an attorney in South Florida who had been taking certain types of cases in our area and he decided he didn’t want to do those cases in our area anymore led to some extent his marketing system is still generating leads for those types of cases.

Christopher T. Anderson: Sure.

Allan: So he thinks highly of my associate. They become friends and he said, “Hey, whenever I have these cases coming my way I’m going to refer them to you.”

Christopher T. Anderson: And now you’re in Florida, so does that mean you’re paying this this source as well?

Allan: Well and the source said he doesn’t want any referral fees. He handled it like, “Hey, if you have anything that I can service, I’d appreciate if you keep me in mind.” More of a reciprocal staying.

Christopher T. Anderson: Sure.

Allan: Which is generally my experience amongst criminal defense practitioners is they don’t seek referral fees for criminal matters. They just sort of scratch each other’s backs including the local area. Like when there’s co-defendant matters, right? And so this prompted my associate to say that he would like to receive 25% to 30% of the total fee in addition to his base salary. I told him that I was going to look into it and get back to him and then sometime thereafter his friend and he were chatting and his friend said, “Hey, I’ve referred some cases to you. Have you guys signed any of them up?” And he rattled off a few names. My associate recognized those names and that sort of triggered him to send me an angry email sort of reacting as if I was holding the out on him. It basically it looks that about this source has sent looks like six or seven potential clients, only one of them have identified the source or my associate right as in, “Hey, someone told me to call Chris Anderson. I’m here to speak with Chris Anderson.”

Christopher T. Anderson: Right, so they came in. You didn’t know they were necessary referred by this person?

Allan: Yeah, and the reason I bring that up, I think this is in my thinking, Chris, this is sort of an important element is that — you know, while the source may have said, “Hey, I recommend this person. You should contact him.” That doesn’t necessarily mean that’s why the lead contacted the firm. By illustration, you know, our marketing system is very good. We often times — we have people shopping around, we’ll have the same lead call us multiple times just to see us in multiple places, they forget that they’ve already spoken to us, you know? But my biggest point really is that these are clients that retained us weeks ago and never mentioned that it was a referral. Now of course my real focus is not on these handful of clients, right? My real focus is, moving forward what will be a fair bonus or fee division and should I have the associate — you how much of the intake process should the associate do the sales process is really what I mean. I’m not really too worried about communicating it to my associate. He and I have a good relationship. We’ve had money conversation before and I feel like we both come to the table with integrity and honesty, you know, sometimes worried about the interpersonal aspect.

Christopher T. Anderson: Except he sent you a pissed-off email?

Allan: Yeah.

Christopher T. Anderson: Yeah. So there’s a trust issue there. So let me ask you a couple questions that I’d like to Rob to come in because Rob has got a particular point of view on generosity/liberality of pinky paying bonuses and like keeping a low threshold which I agree in this circumstance like because you know — what I find is a lot of law firms come at it with a, “I’m going to find a way to not pay it” which then kind of tamps it down, but I’ll let Rob speak to that.

(00:05:23)

But I want to ask you a couple questions. First of all, other than salary, do you have any production bonus at all with this person or is this person just a straight salary no matter how many cases you load up on his cart?

Allan: It’s the latter just salary and benefits. Yeah, nothing tied to production.

Christopher T. Anderson: Okay, and then do you pay discretionary bonus end of year or have you?

Allan: I have not for a similar reason of not coming up with a fair system, you know not feeling pressure like now to create one, but I’m not against it. I just handed on the facts.

Christopher T. Anderson: And then do you, the last question then I’m going to hand it over to Rob her minute. Last question is, do you have an idea of your total cost of acquisition of a client today?

Allan: Yeah. It’s in the tens of dollars.

Christopher T. Anderson: Holy shit, really?

Allan: Really. I gross on average 100 grand a month, 105 grand a month and I spent about 5 grand on marketing.

Christopher T. Anderson: Okay. So 100 grand gets about 20-21 clients and so you’re spending 500. That’s 500 per client. Yeah?

Allan: Okay, yeah.

Christopher T. Anderson: Which makes sense, so we’re talking about a 10% marketing cost that that all makes sense. All right, Rob to you, what are your thoughts to Allan’s question?

Robert Leitner: There’s a lot to unpack here, but I’m going to give you my thoughts and I can’t say in any particular order, but here we go. First of all, I don’t know your associate’s personality. So if we go ahead and create this referral program — I don’t want to assume that he’s going to engage in business development and networking and attend events and really, you know, go for it. Sounds like most of these referrals were gifts, which is okay. But let’s not assume that he’s going to be an aggressive go-getting business development type of person. That’s point number one. Number two, I would want to know and I mean this rhetorically, what’s your cost to produce your services? I want to know your profitability before we determine if 25% is good, 28%, 19% or what that looks like, the format. Let’s take a look at your service. How much does it cost to provide? How much are you charging? What’s your profit margin? Then we can bake in the expense of a referral fee of some sort.

I deem the source is critical. I would encourage you to come up with a system where someone “claims” a PNC and then a client. It could be done via email, Slack, Teams, an Excel spreadsheet, it doesn’t matter, but some formal system which will eliminate confusion. You can certainly make this retroactive. You had mentioned that really it sounds like the source was only ID’d once. If your associate could provide emails or texts or some other type of correspondence with names that you could make this retroactive and let him claim additional referrals. Chris is right. You want to encourage this. I recommend a low threshold. If your associate leads a business card on a bar somewhere and the manager gets a DUI and picks up that card and calls and we can ID the source, good enough in my opinion. I would also think about coming in some type of production bonus and a discretionary bonus if money is the issue. So I’m not sure if it’s the concept of the referrals that are the issue or is it his overall compensation that’s an issue. So we have a couple different levers here that we could pull and I would recommend thinking about that as well.

Finally, if your associate is really good, so if you have — well, I’ll ask you, give you an associate a grade out of 10 overall?

Allan: 9, 9 and a half, 10. I mean so.

Robert Leitner: If you have an employee that’s 9 or 9 and a half, high level, take care of that employee. It’s to cost you far too much money to go another route. Take care of that employee when it’s reasonable. Finally, keep in mind by encouraging referrals, you actually will lower your cost of acquisition. If it’s $500 a client, you theoretically don’t have to spend as much on marketing and your cost of acquisition is lower. So look at it is an investment not necessarily an expense. So I know those were a little bit random, but hopefully that provides a little bit of insight into how to analyze this.

(00:10:00)

Allan: Yeah.

Christopher T. Anderson: So great. I don’t disagree with anything that Rob said, but I’m going to go a little further and I’m going to give you a couple of answers. World according to me, first of all, coming out with a 25% to 30%, your marketing costs are 5% or, sorry, close to 10%. Obviously, we’ve got a little bit of a disconnect there and, you know, somebody’s heard some numbers that are going around in the PI world, which has higher margins and higher marketing costs which is why PI gives the referral percentages that they do because that is commensurate with their cost of acquisition. They spend a lot more money on marketing, so they’re willing — when they get a client in to do that. Yeah, I also agree with Rob — another question we didn’t ask you is, you’ve got you and an associate. Are you turning cases away today?

Allan: No, not unless they’re not a good fit.

Christopher T. Anderson: Okay. Because obviously, if you’re turning cases away and he’s bringing in more, that’s just causing the bucket to overflow a little bit more. We could talk about reducing your marketing or whatever. So, yes, low threshold, but definitely identifiable. We all have the problem with lead attribution. People see if you’re doing a good job with marketing, they’ll see, I’m just going to make stuff up, right? But they’ll hear your radio, they’ll see your billboard, they’ll see the pay per click, they’ll get an organic result. Which one brought them in? Don’t know, but if your associate was involved with it, I would rather say be generous, go low on the bar and go lower on the percent, right? To make up for it, rather than go high on the percent, but have a really strict rule because it always tastes bad when, I come in and go like, hey, Allan, that one’s mine. You’re like, no, it isn’t. Even if I make more money, I could just be —

Allan: It makes people resentful.

Christopher T. Anderson: Yeah.

Allan: You know, about, in fact, we already kind of had that happen this week. There was a woman who called my office around 5:15 in the afternoon, left a message, my son is in a thing, give me a call and then this source happened to speak with the woman and emailed my associate and this is about an hour and a half after she called us and I looked up and she called one of our Google Ad tracking numbers, right? So I know that’s how she came to us and so I spoke with the lead Monday night and she said, “yup, I want to hire you. Let me talk to my son and we’ll get back to you” and then a day later, when my associate saw the email from the source, he forwarded to me and said, “hey, here’s another referral that I received” and then I think he saw my notes in our practice management software and called the lead and then, it is a sort of tripping over himself to take credit for this conversion, right? Like in a note. I mean, he’s literally claiming that the lead was waiting to hear from him in order to hire the firm and all that.

Well, I had to call this woman, the mom of the new client, the now new client, to follow-up on a few things and I kind of visited with her about marketing, and I asked her if she realized that my associate and I were in the same and she basically said to me that she had no idea that he was in the same firm when she spoke with him. She was not planning on hiring him until he mentioned that he works at this law firm and then she kind of viewed it as like the stars aligning. You know what I mean? Like, “oh, okay, well, now I’m definitely.” And my point is these sorts of things can get sticky.

Christopher T. Anderson: Right, so we create a two-tier system, right? Straight up referral. That’s how it came in. I’m going to make up a number, 12%, 15%, 10%, doesn’t matter. Mixed referral came in two ways, one of which was through a referral to you. It splitsies. If it’s 10%, 5%, if it’s 12%, 6%, whatever, but just like a straight up boom, full, cloudy, mixed, but never zero.

Allan: What if — know, you can really split heirs over this, you know Chris and I don’t know if it’s a good idea to think of all these possibilities, but what about scenarios where, you know, I do a consult and then the person shops around a little bit. This source emails my associate and says, “hey, I just spoke with so and so. I recommended.”

Christopher T. Anderson: Splitsies. Don’t split hairs, it’s splitsies. Why is it splitsies? Because you don’t know if the person — what pushed them over the edge? Sure, you did a consult. Were they going to hire you? I don’t know. The fact that they got a positive referral from someone else, did that push them over the edge? I don’t know. You’re going to be right sometimes and wrong sometimes. And that’s why splitsies, because that way, in the end, it’ll come out in the wash and this way you’re not splitting hairs and you’re not arguing over just, it’s clean or it’s splitsies or it’s nothing and just listen, this is a world of abundance. You do this, you make the associate happy, you make the referral source happy, one or two things is going to happen. This referral source is going to keep sending this guy. Like Rob said, “this guy may not be a go getter.” This guy’s going to keep sending him referrals, which is great because he’s going to be feeling good.

00:15:04

You’re going to, by the way, send thank you cards yourself to this referral source. Thank you so much for sending my associate referrals. This is great. If you can keep it up, we’d really appreciate it. By the way, tell me more about how we can refer cases to you. So you get involved there without trying to cut your associate out, but just showing gratitude and then the relationship continues or and this is what I predict, this source dries up and your associate doesn’t really go hump it to get more stuff and this is all moot but so let’s pick a percent. I say you should pay him 10 or 15. I would probably say ten. If it’s cloudy, it’s a split, it’s 5%. That way, he’s always getting something. If he touched it in any way.

Allan: Yeah, I like that. Now what about the scenarios like I outlined earlier where sort of days or weeks after the fact, the source says, oh, by the way, I told Chris Anderson to call you. Did he ever do that?

Christopher T. Anderson: Splitsies?

Allan: Yeah, so even then say, “okay, we’ll go back and we’ll give you 5% or whatever.”

Christopher T. Anderson: Yeah. You’re going to err on the side of paying.

Allan: Okay, so I processed all this. Now, when the referrals come in, like a straight referral, like, hey, here’s Chris Anderson’s name and telephone number. He has a case. Who would you recommend does the consultation? I fired my salesman about a year ago, so I’ve been doing all the consultations. Eventually I want to hire an intake manager when I find the right fit.

Christopher T. Anderson: Is your associate not doing any of the consults right now?

Allan: He’s not doing any.

Christopher T. Anderson: Then I wouldn’t change that, unless, you know, but I would ask him, do you want to do some? If he wants to do some, then throw some at him, see what his conversion rate is and then make a decision but if he’s comfortable letting you do them, then you do them and you still pay him.

Allan: Yeah. So just kind of say, “look, you’ll get 10% or whatever. I can do the consultation or you can do the consultation, but either way it’s going to be 10%.”

Christopher T. Anderson: Yeah.

Allan:  What would you like to do?

Christopher T. Anderson: Yeah.

Allan: You’re not getting more for doing the consultation. You’re not doing less if I get the consultation?

Christopher T. Anderson: Not right now, not until you see his conversion rate and if you really want him to be on your sales team, and then you can talk about comp. If he can do them, you should stop.

Allan: Oh, yeah. Well, though, I tell you, that was my initial idea, was to say, “hey, you contact the lead, you do the consult, you bring him across the finish line.”

Christopher T. Anderson: Listen, let’s see how good this guy is. It may prove to him that he sucks at it and he should stay with you, but let’s come at it from an abundance mindset. Yeah?

Allan: And I like the idea of — I mean, it’s like Rob said, you know, if you put a gun to my head, I’m not willing to pay anything to keep him from leaving, but I don’t want him to leave, right? You know what I mean? I don’t want to feel like I’m being taken advantage of. I feel like I’ve allowed myself to be taken advantage of by prior employees. So I’ve got a soft spot there, scar tissue there, but I don’t want to lose him.

Christopher T. Anderson: Yeah and the other question is, because you weren’t able to answer, it was like, what is your overall profit margin? Because we don’t want to eat into that.

Allan: It’s like 30% after I pay myself my monthly salary/profit distribution.

Christopher T. Anderson: Okay. Yeah, what is it? When you just pay yourself fair market for the job, you do?

Allan: You know, 45%.

Christopher T. Anderson: Yeah, so then the numbers I said were probably pretty good and yeah, pay to keep them don’t get taken advantage of. These numbers that we’ve talked about are all fair, and this gives him an opportunity to earn more.

Allan: Yeah.

Christopher T. Anderson: Yeah, and if he decides, if he gets hooked on it and he starts generating more business, yay. That’s great. Pay him handsomely so that there’s no incentive for him to have all of a sudden realize, “oh, I’m really good at this. I could just start my own firm. I’ll generate my own business.” Right? Pay him so handsomely that he wouldn’t want to go anywhere. You still get a profit off it, and that’s a better place to be.

Allan: Yeah.

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(00:20:00)

[Video Playing]

Christopher T. Anderson: In the next segment, a lawyer wants to know how to craft introductory meet the lawyer videos for future clients.

Female Speaker: We’re doing a video shoot for our attorneys because we use dragons so they don’t meet with attorneys before they’re making their decision. But my sales team asked us to have intro videos for the attorneys so that our potential clients can see who they’ll potentially be working with. So I’m just looking for some ideas of what they should be answering in those intro videos about themselves.

Christopher T. Anderson: Yeah, it’s not my firm. I’ll take the lead and I’m going to let Rob totally disagree with me here. It’s not my firm, so I feel hesitant to say. If it were my firm, I would say whatever the hell they want to talk about and that’d be completely personal. But it could be like, what’s their favorite summertime activity? What’s the best books that they’ve read, favorite television shows? What do they like to do on the weekends? Whatever. But very personal because I think, first of all, I think it’s a great idea to do this. What you don’t want is some sort of thing where you’re putting your prospective clients in a position of trying to choose who’s smartest or who gave the best answer to a legal conundrum.

Female Speaker: It is really not going to be a. Okay, here are the videos. You choose. Pick who you want. We assign based on.

Christopher T. Anderson: Oh, no, I get it. That doesn’t stop them from doing it and from telling you, no, I want that one. I want that one. I get how the mechanism is going to go, which is even more reason why you don’t want to give them fodder for that is just personalizing the people and seeing them that they’re human beings. So if you want, you could give a list of ten possible topics, but then just let them go. And you’re having. It’s professionally done.

Female Speaker: Yes.

Christopher T. Anderson: Awesome. Just give them some 10, 12 topics and then let them go. Would be my take on that. Rob, what do you think?

Robert Leitner: Question, when and where during, when in the process would these videos be available to PNCs?

Female Speaker: We’re probably going to add them to their bios.

Robert Leitner: On the website?

Female Speaker: Uh-uh.

Robert Leitner: Okay. So that I find a little bit more problematic, because then I think people are going to look at all of them and pick and choose.

Female Speaker: If we don’t do that, then probably after they’re assigned sending them the video of their new assignment.

Robert Leitner: I think that probably would be a better choice. I would leave you with this too often on the videos. It’s the attorneys talking about how great they are, where they went to law school, what judge they could look for.

Female Speaker: Yeah, we’re not doing any of that.

Robert Leitner: Yeah, no one gives a crap, especially in modern society. It’s about what you’re going to do for me. So that’s what I would gear the video. The attorney should talk about what they’re going to do for me. I’ve been a family attorney for whatever years I’ve represented this, that and the other case. I’m going to help you this, I’m going to help you that. I have experience this. That’s the angle I would shoot for, how I’m going to help you solve your problem. And getting to what Chris was saying, a lot of people are visual. This helps establish a connection. It’s the same thing whereas people are sending PNC’s videos. Right. Quick 32-second video because that is an easier, stronger connection than just getting a text or just seeing an email. This is kind of the same thing. So I think it’s setting up a connection and it’s talking about what the attorney is going to do for the PNC.

Christopher T. Anderson: Yeah. Rob, I think I’m so glad you asked the question that you did, because if that’s where it’s going to be. Yeah. I think the attorneys just look right in the camera and just say, hey, listen, this is what the first 30 days working with my team is going to be like. Here’s what we’re going to do. We’re going to meet. We’re going to set up some stuff. We’re going to talk my business. We’ll have a playlist. Meeting your business will do something else. We’ll talk strategy, and then we’ll meet in person. Or we won’t meet in person. And we’ll talk about what should happen. And by the way, you’ll meet your paralegal. Here’s a picture of him. They’ll be your main point of contact. We’ll always be here for you. Just personalizing the first interaction. Because let’s remember, most of our clients, this is their first time through. Some of our clients, it’s the second, but it’s the first time through with your firm. And they’re scared. They have no idea what’s about to happen. And so just personalizing that and giving them that initial contact, because remember what’s happening. If you’re doing it right there after the assignment, what’s happening there? Buyers remorse. Did I make a mistake? Did I hire the right firm? What questions didn’t I ask? And getting that personalization in there before the meeting even happens. Powerful. I love that answer, Rob. Thank you.

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[Music]

Our final segment covers what to consider when hiring a managing attorney or director of operations.

Female Speaker: How do you hire a managing attorney or a director of operations?

Christopher T. Anderson: I think that’s a great question for Rob.

Robert Leitner: Yeah, I’ll take that one. That’s a pretty good one. So how do you hire a managing attorney or director of operations? Those two need to be distinct. Managing attorney in my opinion, a managing attorney will have had to have led some legal teams, had some managerial experience. They understand how to foster teams. They are responsible for their team’s performance, whether using pods or just attorneys underneath them. Even the paralegals as well. Managing attorneys may or may not have responsibility for originations, so we need to make that clear as well. Now, when you’re talking about evaluating their performance, typically you could talk about creating an ROI. Basically, how much money do they bring in, divided by how much you’re paying them? And you get an ROI anywhere from, say 2.5 to 4.5. And you can compare them with other managing attorneys. However, please keep in mind, when you’re evaluating the performance of a managing attorney, what percent of their time is required to actually be the manager? And you should basically prorate their performance based upon that. So don’t expect a managing attorney to bill as much as another attorney if the managing attorney is spending 40% of their time working with the team. Okay, so that’s the case of the managing attorney.

Director of Operations. Different. Director of Operations should have some very explicit business experience. Running a business does not have to be a law firm. Remember, a law firm is a service business. There are many other service businesses that are very similar, and the experience is transferable. Director of operations has to be fearless. You’re dealing with attorneys, no offense, even though I just offended everyone on the call, you’re dealing with very strong personalities. A lot of ego is involved. And a director of operations, frankly, has to be well acclimated and not afraid to kick ass. Director of operations will be running the firm. They most likely will be running HR. They will be facilities management. They will have their hands in finance perhaps, and they will be responsible for the overall performance of the operations staff. Depending on the size of your firm, you can differentiate between legal operations and office operations. Legal operations basically would be your billable resources, attorneys and paralegals, office operations. Everyone else think more of administrative staff. So, director of operations, you would look for someone who has successfully been operating a business, running a business don’t necessarily have to have law firm experience, but it certainly helps. Christopher, what would you like to add?

Christopher T. Anderson: No, I think that’s great. I think laid it right out there. I guess the one thing that would help would be where to look. Like you said, it doesn’t have to be these people. It doesn’t have, like for the director of operations, doesn’t necessarily have to be legal, but where would you look?

Robert Leitner: Okay, good questions. I’m actually dealing with this issue now because as we all know, the legal employment market is still very tight, right? So everyone’s looking for the edge in recruitment, and recruitment and retention are still the number one and number two issues facing most firms. I personally have been using Wizehire and I’ve been using LinkedIn jobs more and more. In fact, I used to use Wizehire a lot more and LinkedIn less. It’s now flipped. What I suggest to automate the process is make sure you use the prescreening questions, the functionality on whatever site you use. Okay, so for a managing partner, it could be certain years of attorney legal experience in whatever practice area you have. It could be that they have been responsible for the performance of legal teams. It could be that they have, in previous jobs, had to bring in origination and new business, whatever.

(00:30:00)

Three or four bullet points are critical to you. I suggest adding that to pre-screening, which will expedite the process.

Christopher T. Anderson: And then one other source that you can look in. Some people have had success, some people have not. Is at the ALA, the Association of Legal Administrators. They have a job board, and it’s a place to look for sure.

Outro: Thank you for listening. This has been The Un-Billable Hour community table on the Legal Talk Network.

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