He who knows when he can fight and when he cannot, will be victorious. Sun-TzuTo fully appreciate and understand the challenge of How To Alternative Bill, we should explore the various aspects of the challenge. This means we should explore all the reasons lawyers and firms have not embraced new ways of billing their services. In Jason's comment to my recent post, he made a telling comment: "The problem, as I see it for lawyers, is the fact they don't want to carry the risk that the project will cost more than what the lawyer has charged." This presents one of the more pressing challenges for firms as it is based in fear. Lawyers are by nature, more than risk adverse. Instead or measuring and weighing risk, they are trained to eliminate it. In the business world, this approach is problematic as No Risk = No Reward. Lawyers get panicked when they 'risk' not getting 10% of their billing rates. How can we expect them to risk 100%? The trick will be showing lawyers that 100% is not good enough. Risk is a two sided coin and they are only seeing the bad half of it. Put that down on the list of to do's for How To.
Although Toby is the master of this discussion, I thought I'd chime in with some open-ended questions of my own. There has been a lot of talk about attorneys moving away from the billable hour method and look toward either flat rate or some type of maximum billable rate in order to coax more clients (or more of a specific client's work) to themselves and the firm they represent. But, my issue is this: What Does That Mean for Me (the non-billable guy)???
Here are some (very simplistic points) of the benefits that attorneys and clients get from a flat-rate, or similar alternative billing method.
- Motivated to get client's case completed
- Potential ability to take on additional cases
- Profits are not determined upon the number of attorneys on the roster
- Ability to manage the client's matters rather than looking at the time spent
- Leverage different billing approaches to attract business that may have gone to competitors
- Ability to determine exact costs of legal representation
- Simplify the billing process (less time reviewing those billing invoices)
- Use leverage of different billing approaches to determine what works better for their issues
So, if we look past all of the complexities and paradigm shifts that will need to take place in order to get to alternative billing, what does it mean for the support staff of a law firm?
Right now, the way a firm makes money is by charging more hours to a client. The more "billable" people you have on the matter -- the more hours you bill -- the longer you take to finish the matter -- the more you make. Since raising rates this year seems to be off limits, the only way to increase the bottom line would be to hire more billers. And, we seem to see that that isn't an option either.
There is one word that gets tossed around a lot when you talk about alternative billing -- Efficiency. We all seem to agree that the billable hour promotes inefficiency because the attorney will actually lose money by finishing up a matter too quickly. If alternative billing requires that matters be handled more efficiently, then that should push for tasks to be pushed down to the level that can handle them in the most time and cost efficient manner. It should also push for automated tasks when possible and the ability to find the most experienced people to manage the tasks.
Tasks that do not require a licensed attorney to do, should not be taking up an attorney's time. Why pay someone the equivalent of $80 an hour to do the task that someone paid $35 and hour can do? Tasks will be pushed down to the level that creates the highest rate of return. If that means a paralegal does the work instead of an associate, then the paralegal should do it.
Tasks that can be automated should be. This is something that the folks in Knowledge Management have been touting for years, but have not had total success in implementing due to the fact that if a task is automated rather than handled by a biller, then the firm cannot make money off that task. In an alternative billing world, there would be a push to automate these tasks, and train the attorneys and other staff on how to use the automation efficiently.
The end game of alternative billing is to enable the firm to handle more of the client's work in a shorter amount of time, and charging a rate that allows the firm to make as much or more than they were with the billable hour rate. The client wants the firm to handle more of the work in a shorter amount of time, and to have a standard rate charged on each matter that will allow the client to predict the money spent for legal work.
If the firm plans to take on more work, it absolutely has to make the handling of the work as efficient as it can. Finally creating efficient methods, standard procedures, and automating tasks when possible. This should encourage firms to finally implement some of the projects that KM has been discussing for the past few years. It is also a golden moment for well knowledgeable staff to step up and take on take on those tasks that they are qualified to do.
- Because lawyers don’t have time to update their own bios.
- They don’t have time to write articles.
- They don’t have time to update a blog.
I don't know, Larry... I'm going to play Devil's Advocate on this one. I'm a big Twitter fan myself (@glambert), but if an attorney can't take the time to update a bio, or write a blog or publish something on the legal topic that he or she is the expert in, then I don't see them using Twitter either.
Am I way off on my assumptions??
- Employees (Employee ID)
- Offices (Office ID)
- Clients (Client ID)
- Matters (Matter ID)
- Matter Type (Matter Type ID)
- Practice Groups (Practice Group ID)
- Adverse Parties (Conflict ID)
- Vendors (Vendor ID)
- Filed Cases (Docket ID)
- Courts (Court ID)
- Documents (Doc ID)
- Companies (DUNS ID; FEIN;)
- Attorneys (BAR Number)
- Individuals (SSN; Drivers License; e-mail)
- Telephone Numbers
- Zip Codes
- URL (abc-law.com)
How can I link this new information to my existing information?
It seemed like a sure-fire way to make money. But high turnover and rocketing salaries ate into profit margins. Now, the whole pyramid model is looking fragile.The combination of these three things brings me to a new position on the billable hour. Law firms shifting to non-billlable hour pricing will come from profitability pressure, brought in part by client rate pressures. Clients can bring certain pressures to bear on profitability, but they are not in a position to dictate law firms' business models. Which brings us to profitability. Law firms do not measure profitability. This statement may and should sound crazy. Firms measure billable hours, utilization, realization and hopefully leverage. But none of those measure profitability. Even Profits Per Equity Partner (PPEP) is not a profitability measure. That measure does not tell you the margins a firm has on revenue, only the average pay of an equity partner. My Theory: Financial pressures on firms will shift the focus away from leverage to profitability. This focus on profitability will shine a bright light on the limitations of the billable hour. And this in turn will open the door to law firms seriously exploring alternative billing methods.