Last year I had the opportunity to speak with Ron Baker. I’ve previously mentioned him in relation to alternative billing as he is a guru on the subject for the broader professional services arena. The conversation started with him going in to why large firms need to move away from the billable hour. I interjected and said I was sold on it, but wanted to learn more about How To provide professional services outside the billable hour. Ron’s basic advice was to talk to clients. This is good advice for selling services by value instead of by the hour, but doesn’t address the How To.

This week the Principle Partner (which I took to mean managing partner) for Cravath wrote an opinion piece for Forbes – it’s title: Kill the Billable Hour. Mr. Chelser states that it’s not just clients who hate the billable hour – law firms do too. Although a great marketing move, I question whether Cravath knows How To actually function without the billable hour.

It appears that firms and clients are ready; they just need to figure How To. From my recent post on the Paradigm of Profitability, Jackie Hutter’s comment included a great statement: “In truth, many lawyers are unable to function in a fixed price environment.”

In my opinion, this is the challenge. Sitting down and talking with clients about value and price may be a new thing for lawyers, but it is not a particularly daunting task. In contrast, changing the entire way a firm functions will be a monumental challenge. Law firms’ entire structure is built on the billable hour. The way we intake business, the way we manage our knowledge, the way we hire and ‘train’ our people and most importantly the way we compensate our lawyers. The last point is especially important because “you get what you pay for.”

So my role as the KM Guy is becoming the How To Guy. And where this all comes to a head for me is deciding where to start. I have good idea of the various processes and systems involved, but I am struggling with the question of where to best attack this problem. It may well involve multiple points of attack, but I think choosing wisely will be very telling for success.

Perhaps it’s a good time to re-read Sun-Tzu’s The Art of War.

Of course ideas, suggestions and thoughts about How To are welcome.

  • Love the topic! I work as a virtual legal assistant and offer the option of value billing instead of hourly – but that said I do think it takes a huge mindset change and for large firms it could be incredibly challenging. This is definitely an area where solos and small firms have an advantage!

  • Anonymous

    I’ll be following your progress as well. I think the time has come when this is ‘if not when’ on alternate billing models.

    I think the trick will be to pick an important client that you are close to that has a forward thinking client partner and try some models out. The ‘big bang’ approach will not ework and other lawyers will only change if they see success elsewhere.

  • Toby,

    Good post. But I question whether the "How To" is really that difficult? When I practiced, I had to make a fee & cost assessment for just about every case, most of the time because the client wanted to know the information. Being in litigation, it was difficult for some cases, but easier for others. I really don't see the practice of law much different from that of other businesses. You have set processes, and for each process you can assign a $$ range. From that you can build the fee assessment for each client. I'm fairly certain that on a per client basis you won't have the same net as you would on a billable hour system, but maybe you have more and happier clients. 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. But I think that's just a symptom of having operated by the billable hour and not having confidence in their assessments.

    I can't remember who said this recently, I think it was Jay Rosen (@jayrosen_nyu on Twitter), but the gist of the comment was that the New York Times should have gambled at the beginning of the decade on online media by accepting the fact that it would have to lose money to make more of it in the future. Perhaps lawyers should be thinking about the billable hour problem the same way.

  • Jason makes some good points – How To shouldn’t really be that hard. For a solo attorney this would be the case. But for a firm of any size, I can tell you it is that hard. Creating a budget and then living by it when you have 20 time keepers across multiple offices working on a matter requires well-defined processes and the right tools. And these new methods are quite different from what we have now. Thus the comment about re-engineering the firm. And on top of this, our lawyers are not rewarded (especially in the short-term) for re-engineering. So getting them to participate in this effort is problematic. They want the results, but want someone else to put in the time to create them.

    I am not giving up on solving this puzzle. I am merely highlighting the challenge in front of us.

    Thanks Jason for the comment!

  • “Law firms’ entire structure is built on the billable hour”?

    For the benefit of those outside Large Law Firm, explain how the way we intake business, the way we manage our knowledge, the way we hire and ‘train’ our people are built on the billable hour.


  • To Nick’s questions about how BigLaw is billable centric:

    1) New matter intake is only about enabling the ability to bill time. It typically does not capture info on anything else like: referral sources, marketing aspects, even business intelligence about their own work, so that later in the process they can only create bills. The information is not structured well for other uses.

    2) BigLaw is not good at capturing the valuable knowledge it creates. It’s used, then forget about. Some are beginning to see this knowledge as a real asset, but still struggle when they want to effectively utilize existing knowledge for a new matter.

    3) BigLaw hires new associates, gives them a brief orientation, then puts them on the billable hour treadmill. Again, efforts are under way to actually implement formal training programs. But consider that the Big 4 can give new hires six weeks of training before they start billing and some even have annual skills requirements.

    These are very brief answers to the question, but hopefully give a flavor for the intentions of my statement.

  • I feel that when clients ask for flat fee or value billing it is because they feel they are not getting treated fairly under the present billing system. The key in value billing is the value part. Clients need to know what was done on their file and be billed accurately for it. When a client is billed an hour for someone searching for info that should be at their fingertips isn’t value. The lawfirm’s inefficiencies shouldn’t be part of the clients bill.

  • Hi Toby,

    Your post has inspired me to answer your “how to” question, at:

    I hope that helps.

    Ron Baker, Founder
    VeraSage Institute

  • Great post, Toby! I’ve been working on a comparison between German and American legal billing, and maybe some of the points that German attorneys take into account are useful for the “how to” part. They have to consider the circumstances linked with the case, especially scope and difficulty of the legal work, importance of the matter as well as the income and financial well-being of the client. Additionally the attorneys risk of liabliaty might be taken into consideration.

    If you’re interested how German attorneys bill, you can read more on my blog