Kill Bill: 13 reasons law firms should move Beyond Billables
We're called Beyond Billables, but we haven't written a single article about billables yet! You see, our focus is not to teach you how to draft a better contract or any of the nitty-gritty technical stuff. So, we've avoided writing on the nuts and bolts so far. But, we know it needs to be addressed, so here it is... It's time to move Beyond Billables.
Obviously, many firms and organisations have already moved to value-based pricing and other billing methods, so this is by no means a new discussion. There's nothing wrong (in theory) with billing by time either, just ask any plumber. It gives clients some assurance around exactly what they have paid for and plenty of clients want that.
And, naturally, there are going to be really big matters and complex work where there will need to be some factoring in of work done over time. But, these matters aren't the majority of legal work by any stretch of the imagination. The reality is that most of those deals and matters can be divided up into parts that do have set cost, and parts that don't.
Now, lots of people make lots of money billing units of time. But, just because something works doesn't mean it's the best option. Having an open discussion about the function of the billable unit at least gives clarity as to where it serves a purpose - and where it doesn't.
So, what do we think is the problem with billables?
Clients can really hate it, so you'd better change or risk losing them
Let's not kid ourselves. Do you really think your clients wouldn't prefer to know exactly how much they will pay, up-front? So, acknowledging that other firms already provide different charging models, how long do you think you can keep clients for? At the end of the day, clients will vote with their feet. They already are - that's why firms started to change in the first place. Being able to offer different value propositions is just as important at the top end of town as it is for the small suburban practice. Any thoughts to the contrary, in a world where technology is quickly eating away at the competitive advantage some firms have, is simply kidding yourself. Yes, there will be clients that want to keep billing by the unit. With them, you have to decide if it is just an educational / expectation issue you can manage over time with them, if a hybrid style approach is more appropriate, or if you're willing to stick to your guns and lose a client over it.
Billing units harm collaboration
Billing-based models create a considerable disincentive to collaborate to come up with better outcomes for clients. It's difficult to promote collaboration in an environment where each individual needs to maximise their own billable hours. Bringing a team together to brainstorm may be the best way to come up with an answer in some scenarios, but this is difficult to do when everyone must bill for that time (and justify it!). So many of the issues we see are around job security and the politics of trying to hold on to your clients. In an environment that values billable hours so highly, why would we expect any different outcome? There is simply no incentive to share work and collaborate if it means you will be under pressure from above.
Billables create barriers between lawyers and clients
Billing by the hour creates significant uncertainty about how much a matter will cost. Put simply, it places clients in a situation where they're forced to make a decision without clarity. To put it another way, when you go to the store to buy a product, you're not interested in paying for the time it took them to make it. Legal work is a service, but there are also many commodified parts of practice, for which many firms are still billing by the hour.
The bottom line is that it's far easier for a business to make this decision if they have clarity around cost, and that simply isn't possible with a pure billing-for-time model.
Billing by the unit creates disincentives to invest in training, leadership and strategy
If the purpose of each fee-earner is to maximise billables, what incentive is there for senior lawyers to train, lead and provide mentorship to younger lawyers, without it affecting their own bottom line? If billable hours is the primary metric by which your success is measured, it really makes it hard to contribute to bigger picture issues like training, development, mentoring, pro bono, business development and marketing. This issue comes up time and time again, where partners horde work that could easily be done by more junior lawyers, because they are under internal pressure to bill. Ultimately, the client pays more and the firm makes less.
For individuals, it can also be a disincentive. It creates a situation where people pursue their target over improving their skills. Their skills become a means to an end and there is only one real end under this model: how many hours were charged out and how much was realised financially. Why would the individual want to invest in learning, when that time can be spent billing and therefore proving their “value” to the firm?
Billables harm workplace flexibility
Offering workplace flexibility can be difficult when you measure output in terms of time. Yes, you can have a distributed workforce and keep tabs on them. But, a one-size-fits-all billables model hurts those who prioritise flexibility as well as the stars who want to bill to their heart's content. The former don't get the flexibility they want and the latter are simply not rewarded and incentivised the way they would be in other commercial models, such as investment banking.
Billables make lawyers unhealthy and unhappy
Want a great way to make someone unhappy? How about incentivising them to physically work for longer. How about setting up your entire model around getting ahead by investing more time, instead of making the most valuable contribution? An internal values framework where promotion and reward are tied to billings alone has a serious negative effect on the individual's wellbeing. It forces individuals into choosing between having a life and being successful in their role.
Billables are a barrier to efficient service delivery
As a business, you want to build efficiencies into your process. But, having a time-based billing model makes that difficult. For example, under a fixed-fee model, you have an incentive to improve your processes. You have an incentive to become more efficient and therefore more profitable. Billing by the hour doesn't create that same incentive.
It devalues the service by limiting it to a time period in a vacuum
Is the time it takes to draft that clause 10 units, or 25 years and 10 units? It's a damn serious question, billing by the hour devalues all the work it takes and all the knowledge beforehand, and limits it to a piece of time. What if you're really smart and fast? What if you know the answer because you have years of experience? Sure firms have higher rates for higher level staff, but does skill truly increase in a lock-step progression track?
It's unproductive, an administrative nightmare and costly to implement
How much time does it take to implement a system where everyone has to invest so much time in managing it? How costly is it to have every fee earner spending time accounting for their time? Doing the monthly billing? Worrying about their time sheet? Going through everyone's time to decide what stays and what goes? Trying to make decisions on value, all the time, instead of just once when you win the work? It's crazy inefficient.
It's a disincentive to work efficiently
Ok, let's talk about the elephant in the room. There is no way some clients can know how long anything has taken. There are many lawyers out there that pad files with extra time. We've all heard stories about the partner who bills 25 hours in a day. We're all human and, as humans, we are sometimes tempted to do the wrong thing. The thing is, maybe you don't even mean to and you overcharge because you accidentally messed up a timesheet.
Put another way: You have a billables target to hit. Your income, future work, and standing within the firm depend upon whether or not you can hit this target. But, you're not in control of the work you're given so, largely, you're not in control of whether you can hit this target. Naturally, it creates an incentive for lawyers to work a whole lot slower in times where they don't have much work to do.
It's a demotivating and demoralising model to work under for individuals
Feel like your work product is reduced to a 6-minute commodity? How great do you feel when 6 hours of your work is written off at the end of the month, suddenly putting you under budget? As a partner, how fun is it to be put in a position where you are forced to write someone's time off, when you know it will be disheartening? How does it feel to be obsessed with accounting for each increment of your day, every day, for your entire career? How motivating is it to not be in control of the units you bill, and therefore your ability to progress, when someone else internally can decide to simply write them off? How demotivating is it to work in a space where efficiency of outcome is subservient to your ability to justify your position?
It values input over output
Say you have two lawyers. Both are at the same level, in the same firm, and bill at the same hourly rate. One of these lawyers can get a job done to an “alright” standard in 70 hours. The other can get the same job done in 35 hours and can produce it to a better standard. Under the billables model, the client would be charged more for the sub-par work by the first lawyer, than for the better work completed by the more efficient lawyer.
It encourages work hoarding and discourages intrapreneurship
Partnerships and billable hour target models are funny creatures that can have the perverse effect of creating competition and ring-fencing within firms. This is hardly a true partnership. On the one hand, firms pay lip service to encouraging their lawyers to be commercial and develop high-level BD skills. But, in reality, your clients are pre-existing and conflicts also come into play. This makes it hard for senior lawyers to develop the business development skills and forge their own practice over time. It makes it even harder for associates to make a business case for partnership when they are so restrained within the traditional model.
As you can see, there are some strong reasons for firms of all sizes to look at their billing methods and embrace better ways to offer their services both for the sake of clients and for the sake of their employees and work product. The more “hybrid” and experimental approaches that NewLaw and progressive firms can come up with, the easier it will be for the profession as a whole to continue the progress Beyond Billables.