A number of companies (such as Burger King and AT&T) are scrutinizing the billable hour due the pressure to reduce legal costs, especially  in light of the down economy. Accordingly, they are looking at alternative billing methods they, including fee caps, blended rates, discounts, fixed fees, monthly retainers, success fees, and contingency fees.

This is discussed in an article entitled "Billing Gets Creative in Souring Economy" that appeared in The National Law Journal and on law.com.

Further, the article reports:

“In recent years, groups such as the American Bar Association, the Association of Corporate Counsel, various corporate executives and even U.S. Supreme Court justices have called for the demise of the billable hour, saying it breeds inefficiency and is driving up legal costs.”

I can’t personally say I know all that to be true, but I do believe the billable hour is doomed as the favored method of billing, as I have addressed in a number of earlier posts (click Continue Reading below, if you are interested in reading five of them), because it is like cost-plus government work (the more time you put in, the more you make), and billing by the hour has very little to do with the value clients’ receive for the legal services provided.

But unbelievably too many large firms still resist alternatives to the billable hour, which is why the door is wide open for smaller, more flexible law firms (a number of which are mentioned in the article) to barge into the gap.

So, if your firm is willing to share more of the risk through alternative pricing schemes that reward efficiency and success, you have a real opportunity to take work away from larger law firms in the current economy. 

Continue Reading Now is the Time for Creative Billing to Gain More Clients

At the Legal Marketing Association annual meeting last month in LA, the chairperson and the general counsel of the Association of Corporate Counsel, along with two other members on their panel, let law firm marketers know how they felt about the increasing rates and associated legal costs of outside counsel.

According to a post by Mark Beese on his Leadership for Lawyers blog entitled “We’re Not Going to Take It,” the ACC reps laid out the realities in-house counsel are facing, specifically:

  • Pressure to contain and predict legal costs,
  • Frustration with double-digit rate increases,
  • Off-the-scale associate salaries (and corresponding hourly rates); and
  • Perceived unwillingness by law firms:
    • to discuss alternative fee arrangements, and
    • create lower cost methods for commodity work.

So, what’s my point? Talk to the in-house counsel you know about your fee structures, and willingness to discuss alternatives to the traditional hourly rate. There’s a lot of work out there for medium-sized and smaller law firms because of their lower fee structure and flexibility. 

If large firms aren’t yet fearful as to how serious corporate counsel are about finding solutions to these pressure points, they will be soon enough. And just think how you can help them along by picking up more of their corporate work in the meantime.

Thanks to a reader, I was alerted to an article entitled “Taming the Billable Beast” by David Gialanella in the February issue of the ABA Journal.  The article discusses how three firms are doing just that. How? you many ask:

  1. Harrison & Ford out of Atlanta has eliminated the billable hour requirements for first year associates, AND doesn’t charge clients for their time on a matter. (If you want to read more about this, take a look at my post entitled “Is the Billable Hour Now Dead?” of last August);
  2. Shepherd Law Group in Boston has done away with the billable hour completely “in favor of flat fees and fixed prices;” and
  3. Strasburger & Price in Dallas has reduced the billable hour requirement for first-years by 320 hours, and increased hours for on the job training.  

It’s reported, and I would wholeheartedly believe, that clients and first-years love it, and it certainly should help with the perennial associate retention problem.

One troubling point mentioned in the article relating to the Shepherd firm. And that is the statement involving CEO Jay Shepherd that “he denies secretly keeping track of hours spent on each case.” If the firm doesn’t do so, IMHO, it is being foolhardy based on the following simple reasoning:

  • You can’t make a profit on fixed fees unless you know what your costs are;
  • You can’t know what your costs are unless you know how much time (and other dollars) are consumed by the matter; and
  • There is no way to know how much time is being spent on matters if you don’t keep track of hours!

Duh! 

So, either they are guessing which means they don’t have a clue what their profit margin is either, or the firm has some other means of determining costs that I am unaware of.

In any event, I commend the firms for addressing the billable hour problem. I have long advocated dropping the billable hour (that doesn’t mean you don’t track working hours internally) for fixed fees as a legal marketing strategy. Moreover, it seems that reducing the billable requirements for new associates has benefits as well – in terms of training, associate and client retention, and business development. That’s a win-win-win all firms should consider.