9/6/12

The Billable Hour Drives Efficiency. Who Knew?

Image [cc] Mike Licht, NotionsCapital.com
Recently Lexis released its findings from a new survey on Non-Billable Hours. Lexis had previously done a survey on Billable Hours and their curiosity lead them to the second one. Both surveys focused on the solo / small firm market with firms of 20 or less lawyers. I was able to talk with some of the Lexis people to get a better sense of what they found.

First they shared an interesting finding: Lawyers spend their non-billable time on practice management and admin tasks. And they do this over and above efforts on client development. Why is this interesting? With all the talk about LegalZoom and threats to the legal market you would think lawyers would be refocusing their efforts, but alas, they are not.

Years back when I did presentations on law practice management 101 I would hammer on the theme of focusing on revenue instead of expenses as the Path to Profitability. All these years later, lawyers still devote too much time to admin tasks. My advice – hire someone to perform these tasks (or outsource it). Your time is worth a lot more than that.

Lexis also shared with me the rankings of which practices have the least amount of non-billable time per day – averaging about two hours. The top three: Insurance Defense, Labor and Litigation. As well, they shared those with the most non-billable time per day – about four hours: Personal Injury, Criminal and Immigration. I then shared my perspective on that list. The practices that ‘waste’ the least amount of time on non-revenue generating activity are those most driven by the billable hour. All three of these ‘efficient’ practices have rate pressures and bill primarily by the hour. The most inefficient practices bill with Alternative Fee Arrangements (AFAs) using contingency and fixed fees.

Now this may appear to be counter-intuitive as you might think AFAs should drive efficiencies, but I think it makes perfect sense. Lawyers wearing a billable yoke around their neck constantly fill the need to respond with billable hours. Those without it are much less compelled.

So I guess the lesson here is that making people’s income subject to them working harder seems to work. Now we just need to help lawyers understand that there is a bigger reward for working smarter.

Which brings me back to where lawyers spend their non-billable time. My advice: If you are a lawyer with two to four hours a day to spend on non-revenue generating activity, spend it engaging clients.

[This experience advanced my appreciation for Jeff Carr’s frustration. He is tired of talking about the need to utilize AFAs. He’s been doing it for years and no one seems to be listening. I’m feeling much the same way. Jeff, Next time we meet – I’m buying.]

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5 comments:

Anonymous said...

Interesting post, but I think misses a couple of points.

Firstly, simply having a larger proportion of billable to non-billable time doesn't necessarily equate to efficiency.

Secondly, it also doesn't take into account how much of that billable time is written off.

Steve said...

Lexis's survey measures efficiency from the perspective of the firm. The less time devoted to administrative tasks (proportional to that billed to clients), the more efficient the lawyer or firm is. The hourly rate creates incentives for them to spend less time on such tasks.

Fee arrangements that are not based on time measures, though, should create incentives for greater efficiency as viewed from the client's perspective. The hourly rate creates incentives for inefficiency. If two lawyers with comparable experience and expertise work on similar matters or tasks, but one is simply faster at accomplishing that work (perhaps he/she reads faster or knows some research shortcuts), that faster lawyer will spend less time on reaching the same result, bill less time to the client and end up viewed as less "valuable" to the firm because he/she has lower billables. The client, on the other hand, will be disadvantaged by paying for the inefficiency of the other lawyer who spends more time on the same task. If that less efficient lawyer rises in the ranks of the firm due to the higher billables due to inefficiency, the client may even pay more later as that lawyer's billable rate rises along with his/her rank.

Anonymous said...

I agree with the previous comment that simply having a larger proportion of billable to non-billable time doesn't necessarily tie directly to efficiency. This is especially true considering the practice areas identified. Insurance Defense, Labor and Litigation often involve situations where firms have longstanding client relationships with a steady stream of business. Personal Injury, Criminal and Immigration are much more likely to be a single matter and then done. As such, practitioners in the latter set of practice areas must spend considerably more time on new client development/generation, which is non-billable.

Juliet Grossman said...

Here is a different perspective: we are a small firm with a trust and probate litigation practice. Our practice is 100% litigation and we have very, very few hourly matters. Virtually every case is contingency fee.

How liberating to be freed from Time Matters! Now cases are worked up to provide excellent representation of our clients and we also are freed to spend a large amount of time keeping up on research, changes in the law (a big issue in our niche), and of course marketing the practice to bring in new clients.

We focus a great deal of time & energy on marketing via our website which is how a surprisingly large number of clients are finding us these days. Also meeting with potential new clients at length to assess their cases and returning calls or emails extremely promptly takes time.

Loretta Ruppert said...

Toby, thanks for the summary of both surveys and your takeaways. There is also an info graphic around the billable hours survey which your readers may find useful: http://www.lexisnexis.com/law-firm-practice-management/pclaw/billable-hours-infographic/infographic.htm. Surprisingly, most lawyers in the survey(s) who spent time on the most non-billable hours were not actively using a law firm management software nor were they handing off or outsourcing admin tasks --- both of these can help to increase profitable revenue.

 

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