“A story about time based billing” or alternatively “how to ensure your staff and clients are underwhelmed and unhappy”
The billable hour is a widely used and accepted mechanism for the invoicing of clients in professional services firms, and particularly in law firms. As will be apparent to those whose keen wit managed to pierce the subtlety of this article’s title, it is the writer’s view that such an approach cannot survive in the modern commercial world. In a period of stagnant demand for legal services, most firms have continued to increase their hourly rates at or above CPI rather than deal with the underlying issue – that corporate Australia is demanding better value from their lawyers. But all is not doom and gloom – it has been five years since Stephen wrote his article in the New York Times “The Tyranny of the Billable Hour”, and there are more and more firms offering a sensible alternative.
The debate about time-based billing is not a new one, and we have all read passionate defences of the status quo. Leaving aside the bias inherent in most of those defences (particularly given I must acknowledge my own bias towards value-based pricing), I seek in this article to convince you that it is passed time that lawyers and legal services should be measured by quality, outcomes, collaboration and efficiency rather than the time spent at their desk. I should say that there are always incredibly intelligent and talented lawyers who will eke out great outcomes for their clients – but they do so despite, not because, of the antiquated method of billing per hour spent.
Before I summarise some of the rationale behind value-based pricing on a theoretical basis, it is worthwhile detailing some of my own experiences (and feedback from clients) which first motivated me to explore more effective and client focussed business models when starting my own firm. How many of the following ring true to the lawyers and/or users of legal services that are reading this?:
- “bill shock” – surprise at the quantum of an invoice when it arrives in your mailbox;
- Spending an inordinate amount of time in the administrative task of recording and entering “time” which is then invoiced (with very little thought) to a client;
- A toxic work culture that rewards inefficiency;
- Six lawyers attending a meeting where two would have been more than sufficient (perhaps because there is a “the other side had that many so we had to also” mentality);
- Ten junior lawyers being assigned to review thousands (if not tens of thousands) of documents at $300+ per hour, where sophisticated technology can do the same work at a fraction of the cost; and
- Smart young lawyers leaving the firm (or the law entirely) when they realise that efficiency and intelligence is rated as less important than hours billed to a client.
The above are just a glimpse of the internal inefficiencies in a law firm, and based on my discussions are remarkably consistent across the profession. However if a shared and truly collaborative process is adopted by a lawyer with their clients, most if not all of the above issues disappear.
Selling Time vs Selling Value
There are many arguments against time-based billing, however the key concept is that the model creates a fundamental conflict of economic incentives. The law firm wants more (hours) whereas the clients wants less – where is the motivation for a law firm to actively seek ways to do things smarter, quicker, and more effectively? There is no doubt that time is the easiest measurable in the delivery of professional services, but it is not an effective measure of outcomes or value, the two things that are at the forefront of every client’s mind.
Why switch from a time-based lawyer to a value-based lawyer? So glad you asked:
- Because you want an efficiently delivered outcome, not a certain amount of time spent at a desk;
- Because it encourages open communication and collaboration between lawyers and clients;
- Because it creates happier and more fulfilled employees (and by extension, employees who are more dedicated to finding and creating value for the firm’s clients);
- Because it creates a greater alignment of interests; and
- Because it changes the focus from TIME to QUALITY.
Now that you are all thoroughly on board with the proposition that value-based pricing is in your best interests, we should look to how a firm like Aptum can deliver premium quality legal services within a value model. There are a number of different steps required, however they all revolve around the key concept of legal project management. At a simple level, we communicate openly with our clients to determine their wants and needs and explain the value that we think can be added with our services. That allows us to establish the scope of work for Aptum, and the involvement of the client and any third party provider in that process (and of course, the value within that scope of work). That then allows us to establish a detailed project plan and timelines for the delivery of each stage of the project, which are entirely visible to the client and again facilitates open communication.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Legally Yours Pty Ltd accepts or assumes responsibility, or has any liability, to any person in respect of this article.