Lawyers who still earn their keep by billing for their time by the hour are living in the past. The "billable hour" is a bad business model which also exposes you to ethical criticism the better you get at your profession.
There's a fundamental problem with the billable hour model for determining value to the client - there is little to no relationship between time spent solving a client's legal problem and value delivered. In fact, the inverse is typically true. The more experienced you are in a particularly legal specialty, the better you become at solving the problems of that specialty and the less time it takes. The billable hour model either punishes your growing expertise or leads to the temptation to cheat. Remove the billable hour model from your business model and you not only remove the ethical conundrum but you get paid for value delivered.
There is a flawed premise in the basis of billing by the hour for legal services. The premise is that the "product" that lawyers sell is time. It is sometimes said that, "All we have to sell is our time."
This is wrong. The minimum wage worker sweeping the grocer store floor is selling his time. He is trading hours for dollars. He is a commodity easily replaceable with the next worker willing to trade hours for dollars.
Are you a commodity? Did you go to law school and attend all of those (mandatory) seminars to deliver a commodity?
I hope not.
We sell ideas, creativity and, in large part, the ability to solve people's problems.
There is, I would suggest, little or no relationship between the time spent addressing a client's needs and desires and the value of that time. Importantly, the better we get at our craft, the more this is true. Don't you find that you are better able to solve people's problems in your legal specialty than you were a year ago? How about ten years ago?
I hope so. If not, what have you been doing with your life?
Thus, the lawyer who has made the business mistake of valuing his expertise per minute is in a quandary. The better he gets at his craft, the less time it takes, yet the greater value he delivers to the client. The improvement in the ability to solve problems that comes with education and experience can hardly be compensated by incremental increases in the rate charged per hour for your time. It can't keep up!
The smart lawyer who is wise about business finds a way to be compensated for value delivered. The reasonableness of the "value" of what the lawyer delivers can be measured only from the client's view and not by any comparison with what any other lawyer would have charged for the work.
Let me give an example:
A client comes to you with a $100,000 problem that you have the ability to solve. Because of your expertise, experience and problem solving ability, you have the skills to deliver the solution. You know from experience that the total "investment" of your time for this particular project will be two hours. (You have, however, invested a lifetime of learning to get to this point.) This will include one brief court appearance. You have documents you have prepared in the past and you know you will start with those documents and edit them for this client. You know how to edit them because you are an expert. There's no risk to you that you won't get paid.
You quote the client a $10,000 fee and he is thrilled. He's thrilled because he'll make a $90,000 profit on the transaction. He's thrilled because he's looked around and he knows you are the expert at his problem. In fact, he's thrilled that you have made the decision to accept his case. The client has judged your fee to be fair. You are thrilled because you will be paid $10,000 for two hours of work and, compared to the many other ways that you could have used that time, you judge this to be fair.
This is a good business transaction that's terribly hard to replicate if the only model you know is the "trading hours for dollars" model. How are you going to quote and collect $5,000 per hour? The legal ethical theorists would have a fit. This is, after all "far more than any lawyer in your community charges per hour and, (heaven forbid) you recycled documents" in order to take less time to deliver great value and service to the client. You don't have any incentive to "pad" your time because the value of your services isn't being measured by the minute.
Take the situation one step further: When the client seeks you out, he has a deadline. He wants the problem solved in three days, but you have a problem. You are leaving on the long-planned family vacation in two days. The only time the judge is available is on the third day.
You and the family are, however, willing to rearrange your vacation at a certain price. So, instead of quoting the client $10,000, the price for your problem solving ability and inconvenience is now $20,000. He's still thrilled. He'll have an $80,000 profit. He's thrilled because he's looked around and determined that you are the expert in this field. He's thrilled because the value to him of what you are delivering is still vastly less than what you are actually charging. You are thrilled because the fee is fair compared to how the time would have been used otherwise (i.e. keeping the family happy).
Some legal ethical theorists, on the other hand, are apoplectic. It has not, after all, "taken any more time," yet your fees have doubled!
Now, let's say that by good marketing skills and your experience and reputation three such clients show up at your door at about the same time. Because you will "recycle" documents and go to court but once, your total time for all three clients will be only three hours, yet your quote to each is the same: $20,000 apiece. Assuming that each believes that it is in their self-interest to hire you, and make that choice freely, you will earn $60,000 for your problem solving ability and the fact that your family will delay its vacation by a day.
It would be almost impossible for the lawyer whose only business model is to bill by the hour to charge and collect $60,000 in fees for his expertise for these three hours of work. Billing by the hour - and thus potentially subjecting the fees earned to both a comparison with those fees charged by other lawyers in the community for "reasonableness" and an audit of the time actually spent on each client's documents - is bad business.
In a free and open market, the reasonableness of the fees charged to the client who is paying the fees and who is capable of making the decision for himself as to whether to accept your offer should never be compared to an "industry norm" or to time actually spent on the project. It's bad business.
The "billable hour model" survives in the legal profession only because it is one of those things "that we've always done" and most lawyers have either never questioned the foundation upon which the model is built or haven't taken the time to think about a better way.
About the Author
Ben Glass is a personal injury attorney in Fairfax, Virginia. He is the creator of the Ultimate Personal Injury Practice Building Toolkit. He runs mastermind and coaching groups, and conducts marketing seminars for attorneys, teaching "Effective, Ethical and Outside the Box Marketing." http://www.BenGlassLaw.com
