I Come To Bury The Billable Hour, Not To Praise It

"I come to bury Caesar, not to praise him", says Marc Anthony in Shakespeare's play Julius Caesar.

In high school I had to read Julius Caesar.  It was demonstrated why it was Marc Anthony's speech that swayed the crowd and not Brutus'. Stoicism and Intellectualism share many traits, and both speak from logic to sway the hearts of people. Stoicism in particular teaches the development of self-control, fortitude and detachment from distracting emotions.  It holds that indifference to pleasure or pain allows one to become a clear thinker, level-headed and unbiased.

So, I come to you and say, "I come to bury the billable hour, not to praise it."

And, why should I not say this?  Heck, like almost all attorneys, I do not like the billable hour.  I do not like the mechanics of it.  I do not like having to explain it to anybody.  It certainly does not work in every situation or area of law.  But, at least in the area of litigation, what is the solution that does not act to weaken the net earnings of an attorney for the actual work he or she has to perform?  Call it what you will, illustrate however you want, flower it up all you must, exert the benefits, but is this not the point of the whole argument?  We can talk all day about the values and the benefits to the client, but the argument really comes down to whether or not you, as a lawyer, are going to make a proper and worthwhile living in the highly stressful field of litigation?

Here is the nasty little truth about most practices.  We learned it in law school.  All an attorney has to sell is his or her time.  When it is gone, it cannot be recovered.  Give it away and you are giving away your earnings.  A law practice is a lights-on type of practice, meaning when the lights are off you are not earning money.  This is bad enough, but how bad is it when the lights are on late and you are still not being compensated for the work?  It requires regulation, commitment and priorities to practice in a way that makes you a decent living.  And, lets face it.  Many, many attorneys are not making a decent living.  I get emails from them most days.

Here is the secret or articulated model of many non-billable hour attorneys.  I bring in a lot a cases, get paid a set fee, turn the work over to lowly associates or, better yet, paralegals and secretaries, rake in the money, buy a nice car, have a nice office, and vacation somewhere I like, often.  This method of practice, no matter how envisioned, is not different than selling widgets.  It is offering a service that is needed, but it does not have much to do with practicing law.  In fact, if this is the goal, most smart lawyers would make more money running a company selling widgets.

The real problem, however, is this model almost never works right. There is not enough business, you are not getting paid enough, the overhead is high.  The marketing costs are high.  There can be a lot of reasons whey the equilibrium is off and the profits (that actual part you put in Hip Pocket National Bank at the end of each month) does not materialize.  As a result, the net does not exactly flow to you in a way to support you in the lifestyle you want to grow accustom.

Some areas of law do lend themselves to alternative billing, where others do not.  Foreclosures have mainly coalesced amount a group of large regional and national firms that take a few hundred dollars a case and perform thousands of cases a year.  The market of late has been good to them.  Collection practice is another area.

Some areas, as well, have trended toward this model and it does not typically work as predicted, such as divorce and child support.

Ron Baker of the Versasage Institute responded to one of my posts and stated:  "The billable hour is dying for a simple reason: There's no proven economic theory that shows there's a relationship between time (inputs) and value to the customer".

I do not doubt this comment, but I think it belies the point. First, value is a terrible difficult thing to quantify.  Based upon this fact, I doubt there is a serious relationship between any billing model and the value to the customer.  Sure customers want to pay less and they would rather that you as the attorney take on the risk of their bad decisions.  But, you are not an insurance company.  And that is the second point, when we are talking about fees we need to aside for a moment the value to the customer, and considering the value of the client to the lawyer and the law firm.  And lastly, I think it is an inherently a bad idea to sell fees (or lack thereof, and that is what we are talking about) as a value point for legal services.  You, the law firm, the remedy sought, the defense offered, your ideas, the outcome possible should be the value point.  If they do not want to retain you on these points, you sure as hell do not want the client to retain you because you are the cheapest gig in town, or because you, as the lawyer, assume all of the risk of litigation.

We all remember Dr. Nick Riviera on the Simpsons cartoon TV series. He has a medical degree from "Hollywood Upstairs Medical College".  His degree reads, "I went to medical school for four years and all I got was this lousy diploma". He has a "Walk-In Clinic" the phone number of which is called at 1-600-DOCTORB ("The B is for 'Bargain'").  In one episode, "Homer's Triple Bypass", Homer starts having heart attacks and the family has to resort to the discount surgeon Nick Riviera for his bypass operation.  No good.  In a legal context, however, too often alternative billing means discount services, or at least services where the innocent attorney takes the risk of litigation as opposed to the client.

If alternative billing methods equates to cut rate legal services, bargain basement professional are not viewed well either in the legal community and by many potential clients.  You do not want to be perceived as Lawyer Nick Riviera.

Of course, in limited number of circumstances, the attorney can get the better benefit by doing little and getting paid a lot based upon the fix, non-refundable fee.  This is not good, either.  Sure you can say that this makes up for all of the other cases where you got shafted due to the amount of work, but why should your clients pay for your losses incurred with other clients?  And, why should some of your clients be allowed to put their representation problems off on your future clients?

Ron Baker states and asks, "But in the majority of legal cases, clients want to know the price BEFORE they engage an attorney. We expect this for EVERYTHING else we purchase as human beings. Why do people think it's different for lawyers (or other professionals)"?

It is a good question and it is a correct observation.  A home builder facing a lawsuit defense once asked the same thing.  His point was that he has to give the consumer a price, he is expected to estimate the cost of board feet, etc. and come in at that amount.  Why should the attorney not do the same?  The attorneys' response was to ask if he could give that estimate if he knew that every night during the construction process, someone was going to come in and tear down or destroy much of what he built?  The builder said that would be impossible.  Yet, at least in the context of complicated litigation (or even in cases that lead to complicated litigation) that is the situation.  It is one thing if there are variables you can anticipate and for which you can plan.  But, in litigation the conduct of the other side and, for that matter, the conduct and decisions of your own client, make alternative billing impossible.  Again, alternative billing shifts the risks of litigation from the client to the attorney in most cases.

The bottom line is that decapitation fees are not going to be fair to somebody, and from my experience the attorney is the one that usually gets the short end of the stick.

In all of this, there is nothing that says in certain types of routine work, where risk can be accurately judged, that alternative billing should not be utilized.  And it goes without saying that all billing should be reasonable and costs should be controlled.  The client's benefit should always be considered.  I am just saying that those selling alternative billing in litigation are being sold, more often than not, on reduced earnings.

So, I do not like keeping time.  I do not like hourly billable time.  But, it is accurate, it is the most verifiable.  It is reviewable.  I think it does provide extreme accountability.  And, it is, in many cases, the most accurate way of compensating a lawyer for his or her time (which is all he or she has to sell).

Comments

[Brian Day]

Chuck,
I'm not sure that I want to agree with your assessment, but I'm finding it hard to discount.

I am in the process of planning my family-law solo practice, and one of the biggest decisions that I have to make is how to structure my fees.

There are some aspects of various alternative billing schemes that appeal to me. For instance, it makes financial planning a lot easier. If I know that I will get $x,000 for each divorce case, then my financial planning consists of settling on a target earning amount and doing a simple division problem to calculate the number of cases that I need to attract. I went to law school because I'm not very good at math. I like simple division problems. Additionally, flat fees require less billing, collecting, and bookkeeping time. And, to paraphrase your post, time is money. It profiteth me not to collect for every six-minute increment of legal work if I have to spend large swaths of time doing unnecessary and routine administrative work. Given the choice, I'd rather spend my time practicing law than keeping books (again, not so good at math...).

But I'm also a bit wary about flat-fee structures. It seems that the biggest advocates of "alternative billing" or "value billing" comes not from lawyers, but from consultants hocking their overpriced services. The whole thing smells like a gimmick. It seems that "value billing" is to 2007 what "branding" was to 2005. There might be something of value there, but you have to dig through a whole lot of hype.

I also don't understand why flat fees are better able to reflect value to the client than are hourly rates. I disagree with Ron Baker's statement that there is no relationship between inputs and value. What does a lawyer have to sell other than inputs? A warm and fuzzy peace of mind? With a few exceptions, lawyers sell a process not a finished product. Unlike, say, an automobile or the ever-popular widget, when it comes to legal services, the whole is not greater than the sum of its parts. A lawyer's value has two components: ability; and effort. These are the factors that must be considered regardless of whether there is a flat fee or billable hour fee structure. I see no reason why the value to the client is relected in an hourly rate to a lesser extent than a flat fee. Surely, our whiz-bang free-market system is not stymied by a simple division problem.

I enjoy your blog and have come to rely on much of the advice that you offer. Keep up the valuable work!

[Ron Baker]

Hi Chuck,

Once again, I have to disagree with you, and you even disagree with yourself.

First, you say lawyers only have their time to sell. This is nonsense. Nobody buys time. I don't buy my doctor's time, I buy the results he achieves for me. How can we sell something clients don't buy? This is one of the reasons lawyers and clients talk past each other. The lawyers are focused on the wrong things.

I'm really buying your experience, wisdom, judment, etc. We call that Intellectual Capital. You recognize this when you explain the "value point" for legal services: "You, the law firm, the remedy sought, the defense offered, your ideas, the outcome possible..."

Exactly right: intellectual capital, not time.

You haven't really added anything to the debate that has not already been refuted by Richard Reed's 3 seminal ABA books written between 1989 and 1996, and my 5 books from 1998-present.

I hope you read my Burying the Billable Hour book, it's free and can be downloaded here:

http://www.verasage.com/index.php/resources/C55/

Yes, value is difficult to quantify. So what? That's because it's subjective, and different for each person. I can assure you that talking about hours does not get a lawyer closer to value created for the client.

Your construction example, I think, is flawed. My insurance company sells me earthquake insurance (I live in northern CA). They don't know when the next quake will strike, how big it will be, or how much in damages it will ultimately cost them.

But guess what: they give me a fixed premium, up-front, like I purchase everything else. This is such a basic law of economics I'm amazed by the contortions defenders of the billable hour have to go through to avoid it.

Change Orders are what is used when litigation goes outside of originally planned scope. If mechanics and contractors can use them, I think lawyers can be taught.

The billable hour does not provide extreme accountability, unless you like rewarding efforts over results, costs over value, and inputs over outputs.

If it was such a good system, why is everyone unhappy with it? Why doesn't any other business use it? Perhaps my airline should charge me $4 per minute to fly?

To Chuck's comment, I'm not a consultant "hocking" my services. I founded a think tank that gives away an enormous amount of intellectual capital for free, to help professionals such as yourself adopt a more rational pricing model, one that fits a knowledge economy.

And it's not a new gimmick. The ABA has 3 books on it, as mentioned above, from 1989--that's nearly 20 years!

There is no relationship between inputs and value Chuck. Will you pay me to mow your lawn with my BB Gun? If so, I'll be right over.

A lawyers' value has two components, you are correct. But they aren't ability and effort, they are results and intellectual capital.

Lastly, there are firms that are doing this, some of which are family law firms. Some are litigators, but this is the group, by and large, that claims it can't be done.

The ones that figure it out first will have an enormous competitive edge, while their competitors remained mired in the mentality they sell time.

We are burying the billable hour, one firm at a time. The knowledge is out there for anyone willing to read some books and our Web site.

No charge. No gimmicks. Based on economic theory and empirical human behavior, not to mention how every other business prices.

Sincerely,
Ron Baker, Founder
VeraSage Institute
www.verasage.com

[Christopher Marston, Esq]

Hi Chuck,

I cannot disagree more with your sentiments. It is no more correct to say that lawyers are selling time than to say that any employee in this economy is selling time. We are a law firm that is entirely pricing on a fixed-price basis. . . based on VALUE and nothing more. . . not time. . . not hours. . . no minutes. . . but VALUE. You are also wrong that lawyers end up with the short-end of the stick when they fixed-price {we certainly do not} . . . you have confused two different theories of pricing with one another. If the price is based on an estimate of hours, you are absolutely correct. . . and it is a SILLY model to price based on a time estimate. When you price based on value, all of a sudden you realize you can add tremendous value and wisdom, charge for it, and spend hours LESS time to do it. Result: More value to the client, less time worked, higher "effective" hourly rate. . .if you must think that way. {which is still wrong because any business person knows that hourly rate does NOT equate to profitability. I can state from experience of a firm that uses exclusively fixed pricing based on value in ALL cases, including litigation, that it can be much more profitable that any billable hour system and, perhaps most importantly, provide much more rewarding work for our attorneys. Would you rather spend 2O percent of your time billing and collecting or doing great and challenging work?