January 7, 2008
What's Wrong With Billing By The Hour?
Many in the legal industry are often found complaining of the reliance on the "billable hour" (see here, here, here, here, and even the venerable Scott Turow gets in on it here). Value-based billing and other fixed-fee type arrangements are offered as a better guide.
That begs the question: What has the billable hour ever done to deserve such lament? The answer, in part, may be due to attorney discipline. Again and again I work with attorneys who consider recording their time as an administrative chore, something to be done by others if at all possible. With this attitude, attorneys are likely backtracking to remember what work they did and inevitably are either billing too much or too little. No amount of discussion or proof by the numbers will convince the attorney who is unwilling to record their time as work is being performed.
Attorneys tell me about their clients wanting cost certainty, client questioning the time it takes to perform a task, and clients feeling overcharged for work. This leads many to discount their time through markdowns or taking a percentage or some subjective dollar amount off the bill. This tells me that the client has trust issues with the attorney (or the attorney is worried about it) and the attorney is making it worse by discounting (tacitly acknowledging the client's suspicions).
On the other hand, I know of attorneys who don't have this problem at all. They never write time down, they never discount, and they never have a client question their bills. The client trusts that what they are being billed is the actual work that the attorneys performed. What are they doing differently? Are they value-billing? No. They enter time as work is performed. They use timers. And they are disciplined. Here is the process:
A client calls. A time entry is opened. A timer starts. As the attorney talks, he/she writes in the narrative. If the call requires a letter or other task, the attorney does it, then comes back to the entry and types it in. Once finished, they stop the timer and mark the entry to be billed. Done.
What happens if another client calls? You pause the timer; open a new one. If you want to go back, you pause the second entry and go back to the first. You can do this on a piece of paper and a standard kitchen timer, but why would you want to do that? That only delays the billing of the work and duplicates the process of time entry. Utilize the technology that is out there to help you manage your practice. Do it yourself. Make sure your system has an easy way to access timers within a time entry and can manage multiple timers.
Working in this way can be learned. The difference between the attorneys above is that one looks at the matter first, then the time entry. The second attorney looks at the time entry first, then the matter. By wrapping the tasks you perform inside of a time entry and utilizing timers, you won't over charge and you won't need to discount your time. Better, you won't need to reconstruct your time entries later, wasting billable time and invariably leaving billable work unrecorded (and unbillable).
If you want to stop billing by the hour, that is fine. But I don't think that is the problem for clients. I think it is a matter of trust. Don't allow your relationship with your client to get this way - utilize timers and don't bill any more than the time you work in a matter. And record your time as you work!
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Filed under Alternative Billing, Policies/ Procedures by Brian J. Ritchey
Comments on What's Wrong With Billing By The Hour? »
Liz Harris @ 4:59 pm
As a lawyer who specialises in advising clients and legal practitioners about their costs, we offer both alternative billing and hourly rates.
In seminars on value billing, I point out to lawyers that hourly rates can be just as detrimental to them as to clients. I use the example of the tax lawyer who charges $650/hour (high by Australian standards), and in one hour, due to his experience, contacts, and knowledge gained from 30 years in practice, provides a solution to a client's tax problem that saves the client $10 million. Worth plenty more than $650, but in Australia, on a standard hourly rate cost agreement, that's all the lawyer could ethically charge.
So it cuts both ways, but lawyers don't often see that.