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Considerations other than financial about tiered discounts vs. billing rate discounts

A previous post collected posts on tiered fee discounts and showed a breakeven analysis (See my post of Oct. 12, 2009: volume discounts on fees.). How are volume discounts and rate discounts operationally different? Six differences are listed below.

  1. Volume discounts delay the benefit to the department; hourly rate discounts take effect on the first invoice.

  2. Volume discounts require tracking by the department or the firm so they know when a higher discount starts; rate discounts require nothing from the legal department except monitoring that the discounts were given on each bill.

  3. Volume discounts have less flexibility as compared to hourly rate discounts; theoretically, rate discounts can vary by timekeeper, by task, and by type of matter (See my post of Aug. 22, 2006: tiered rates for individual lawyers based on the difficulty of work.).

  4. Volume discounts may push a legal department to send work inappropriately to a firm; hourly rate discounts do not have that effect.

  5. Volume discounts favor larger firms that are able to garner more work; any size of a firm, with any amount of work, can provide hourly rate discounts.

  6. Volume discounts ought to vary by practice area or somehow take into account that litigation firms enjoy the biggest spend whereas firms specializing in other areas may never reach the discount thresholds; discounted billing rates apply across-the-board to all firms.