Charging clients by the hour does not pay
14 August 2000
30 September 2013
26 March 2014
18 November 2013
10 June 2014
27 November 2013
Centuries ago, some lawyer came up with the idea of charging for his services by the hour. At the time, this was probably a novel concept. It seemed to work well enough and it has certainly withstood the test of time.
One has to wonder, however, whether hourly billing has outlived its usefulness. In our new era when everything moves at internet speed, why should a lawyer be rewarded for taking more time to accomplish a task? Most clients would agree that if services are of comparable quality, the product delivered more quickly has greater value.
If we look at the delivery of legal services in the same way that our clients think about their own businesses, lawyers generally tend to put all of their efforts into "costs of goods sold". They are hesitant to spend much effort on research and development because that time cannot be readily billed by the hour.
As a result, services are often delivered in a fairly inefficient manner, recreating the wheel over and over again. As any good businessman knows, thoughtful expenditure in research and development should decrease costs of goods sold in a greater amount, resulting in a lower overall cost of production.
The technology that has entered our lives in the last decade should help improve lawyers' productivity. After all, what business would benefit more from improved tools for creating, revising, storing, retrieving and communicating documents and other data?
One would think these technological advances would have allowed us to improve the quality and speed of production of a large portion of our work product and decrease the time committed to our jobs. Instead, for many lawyers, technology seems only to have made life more miserable. Clients expect the results of our labours faster and they expect us to turn out a larger volume of work than ever before. This is in a large part because they have seen exponential productivity gains in their own businesses, so why shouldn't they expect the same of their lawyers?
The major difference is that most of our clients do not value their output by the hour. Rather, they charge for their widgets by the unit. When they are able to improve their efficiency of production, the cost of goods sold per unit decreases and they make more money for the same amount of effort.
If we ever hope to emulate this experience, we need to alter some fundamental habits. In my experience, the predictability of fixed price legal billing is generally heartily endorsed by clients. We also need to spend more resources on developing and maintaining reusable legal products and new systems for the delivery of legal services. If the processing portion of our jobs were more systematized, we could spend more of our time truly thinking about our clients' needs and delivering a higher quality service.
These steps require taking some risks - something us lawyers tend to avoid. The idea of spending more resources on non-billable tasks and then fixing our revenues without regard to how long a task will take to complete sounds abhorrent. But if we do not join the rest of the world soon we may find the alternative of staying the course is far worse.
Tom Kellerman is London managing partner of Brobeck Hale and Dorr International.