Asking for a Referral Fee is Crass, With a Few Exceptions

Attorney ethics rules aside, with few exceptions, asking for referral fees from other attorneys is bad business.Law Firm Referral Fee

This is especially true when asked of attorneys who bill by the hour or at fixed rates based largely on time.

It’s human nature. When you work at a lower rate than you think your time is worth, you will either not work as hard, begin to resent the matter, or ultimately give it less priority. You may even begin to resent the referring attorney.

Either way, the client suffers, which is bad for the referring attorney’s reputation. And chances are the relationship between the attorneys will suffer as well.

In the day-to-day battle to conquer the Three Headed Monster of small firm practice (servicing clients, marketing and administrative duties), there’s only so much of us to go around. Developing referral relationships with other attorneys is critical to the sustainability of the small firm lawyer’s practice.

Sending referrals to other attorneys is the surest way to ensure business continues to be sent back to your firm. It’s human nature — when another person gives you something of value, you feel compelled to reciprocate. In legal practice, referrals are most often reciprocated with referrals of equal or greater value.

This, of course may take some time to see a return on investment. But for most attorneys, the lifetime value of a good client is worth much more than squeezing 25% from a billing attorney. It makes sense to wait.

If, instead, you get impatient (or greedy) and demand a referral fee, once it is paid, the receiving attorney’s obligation to reciprocate ends. You are much less likely to see return referral from the receiving attorney. Plus, you are likely to come off as being desperate or greedy. Either way, chances of developing a strong referral relationship with the receiving attorney is slim.

When it’s OK to ask for referral fees

In some instances, it is acceptable to ask for referral fees. These situations include:

1. Referrals of high value contingency cases. Certain practices expect to pay referral fees. In fact, the referral fee is usually built into those practices’ economic model. These attorneys are often litigators working on contingency matters where the fee earned on a case is not a function of time spent, but instead is based on the size of the settlement or jury award. Often, these attorneys earn far more from a successful case than the value of the time spent on it if they had billed hourly. These practices include personal injury, medical malpractice and product liability. Most attorneys practicing in these areas will tell you that they happily pay referral fees.

2. Co-marketing arrangements. If you engage in an exclusive co-marketing arrangement where all your referrals for a certain practice area go to one firm, or where two or more firms agree to engage in a business development strategy on a joint basis, it is proper etiquette to have a referral exchange agreement between the two firms. With these arrangements, the firms are agreeing to some form of exclusivity, for which there is an opportunity cost (i.e., they will not be developing referral relationships with other firms in this area). In exchange, a referral fee is appropriate consideration for giving up the other opportunities.

3. Referrals to non-reciprocating attorneys. If you have referred cases to an attorney and they have not reciprocated in a timely manner (six months to a year), if you are inclined to send that attorney another referral, it would be proper etiquette to ask for a referral fee on the subsequent cases, as long as you explain to the attorney why you are asking for the referral fee now, but have not done so in the past.
You should offer to pay a referral fee when…

If you receive a case from an attorney and you know you will have little or no ability to reciprocate with a referral, if you would like to continue to receive referrals from this attorney, you should offer to pay a referral fee. This frequently happens when you get a referral from an attorney where your practice areas overlap. This also happens when a lawyer receives a case from an attorney where business only flows in the direction of the receiving attorney; for example, where a corporate attorney refers a divorce matter to a matrimonial attorney. It’s unlikely that the matrimonial lawyer will ever be in a position to reciprocate with a referral.

If the referring attorney refuses to accept a referral fee, you should buy a nice gift when you get paid and try to introduce the referring attorney to a colleague who is in a better position to send them referrals.

Don’t kill the Goose.

A good referral partner is the lawyer’s equivalent to the Golden Goose. A steady stream of referrals from two or three key sources can make a practice.

When it comes to giving and receiving referrals, making smart decisions about referral fees is critical to nurturing healthy referral relationships in your law practice.

 

 

 

 

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

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Stephen Furnari

About Stephen Furnari

Stephen Furnari is a corporate attorney and the founder of Law Firm Suites, the leading provider of office space and virtual office rentals for solo attorneys and small law firms. Through Law Firm Suites, Furnari has helped dozens of attorneys launch and grow successful law practices. He is the author of several eBooks, including “7 Deadly Mistakes that Prevent Law Practice Success” and “An Insider’s Guide to Renting the Perfect Law Office”. Stephen has been featured in the ABA Journal, Entrepreneur, New York Daily News and Crain’s New York. You should follow Stephen on Twitter.


Website: http://www.lawfirmsuites.com
Email: Stephen@lawfirmsuites.com
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