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1. The Billable Hour Destroys Innovation
For a while now, clients have recognized that a shift away from the billable hour would increase efficiency and the quality of legal services. Lawyers have been slower to embrace the concept.
Until last year, the vast majority of the family law firms in my local bar turned over disclosure via mail or hand delivery. (And the vast majority of those firms where charging their clients copy costs and paralegal rates to make the copies.) Digital copies of pleadings and documents to clients were the exception rather than the rule.
This only changed because our bar association mandated electronic service of documents.
The billable hour guarantees every hour that you spend on innovation takes away from your income. After all, you only have twenty-four hours in a day. And if you allocate time away from billing clients to innovation and technology upgrades, you will be decreasing the total value of your case under the billable hour.
Investing time and money in a top-notch online collaborative portal? Since it saves time, you would actually decrease the total value of your case because your paralegal wouldn’t need multiple hours to organize, copy, and sort disclosure records.
Thinking of using your firms collective knowledge to create a form bank with automated document creation using document assembly software? The billable hour penalizes you for building such firm assets because they decrease the amount of time needed to execute a project like drafting documents. You could have the collective wisdom of a hundred lawyers in your firm’s knowledge bank that automatically generates 95% of a pleading from the click of a few buttons. These pleadings could be superior to your competitions’ pleadings and you could create them in a fraction of the time.
But doing so would only devalue your case under the billable hour, because it would take you less time.
2. The Billable Hour Does Not Capture Value
Creating a knowledge bank that generates automated forms does not work under the billable hour because the billable hour fails to capture value.
The billable hour simply measures time. But value in the eyes of your client is completely unrelated to time. And while you can increase your hourly rate, you are still pricing your services on time, just with a higher dollar amount per minute.
Sam wrote here about staying up late thinking through a case, before finally falling asleep only to dream about the case. Gerry Spence talks about keeping a notepad by his bedside, only to wake up to hurriedly scribble out ideas for a case.
You can’t bill for dreaming. Yet for many lawyers, it is the constant mental tinkering with the problem that leads to striking gold — to having the brilliant “ah-ha!” moment that redefines the structure of the case.
Oddly enough, you will bill more for the time it takes to tell your client about your brilliant new strategy than for the time it took you to come up with the idea itself.
This is a problem.
Clients want value. Whether you are servicing businesses or customers, the best clients will pay you handsomely as long as you can deliver value that exceeds the money you charge.
3. The Billable Hour is an Atrocious Measure of Performance
My firm tracks billables and rewards performance when lawyers meet hourly goals. Much better measures of performance exist; we just don’t have time to worry about them.
Yet I wonder where we would be if for the last couple of years we measured:
- Turnover time: Many clients’ goals include minimizing the time of their case from start to finish. Measuring the turnaround time for the distinct phases of a divorce case would align with this goal and indicate that cases are moving and deadlines are being met.
- Client happiness: Happy clients refer more cases. More cases are good for business. Surveying your clients’ satisfaction is an effective way to measure client happiness. The Net Promoter Score (NPS) is a simple one-question survey that will generate a high response rate and assign a quantifiable number to measure happiness. Moving the score up on a monthly basis is a much better way to recognize achievement than counting hours.
- Unilateral client calls: Related, how about measuring the number of calls lawyers make to clients just to check in and see how they are doing?
My firm has been working on implementing the three measures outlined above. It has been more difficult than anticipated because the culture of the firm relies on the billable hour. For example, we would lose the goodwill received from our clients if we billed them for calling just to see how things are progressing. Yet it is difficult to tell a lawyer whose compensation is tied directly hours billed that we need them to call clients every Friday afternoon and mark the call as non-billable.
If your clients are not getting great service, they will let the world know it with their fingertips. The firms that will be successful in the future will care about their customers so much they will measure and reward their people who care the most. The billable hour impedes those measurements.
4. The Billable Hour Causes Tension Between the Client and the Lawyer
Most painfully, the billable hour causes tension and erodes trust between you and your client.
When you are billing by the hour, the client assumes all the risk. That may sound good at first but it impedes your ability to establish strong client ties — the kind of ties that make your clients “customers” for life and motivates them to tell potential leads what an amazing lawyer you are.
And because the client shoulders all the risk, few lawyers will spend the time and energy necessary at the beginning of a case to scope the anticipated cost. Family law attorneys in particular often decline to give estimates of legal fees due to the uncertainty in the amount of hours required to complete a case. This leaves your client in the dark. If the case spirals out of your control, the client has no choice but to foot the heavy legal costs or be left out in the dark.
This creates tension in the lawyer-client relationship.
At the end of the day, clients expect much more from their business vendors today than they did just ten years ago. This includes your clients. But while the billable hour may make pricing and profit forecasting easier, it is increasingly putting your firm at a competitive disadvantage. It makes you focus on the wrong measurements and metrics, and it takes away your attention from what the client really wants.
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