Alternatives to hourly billing

Marty Dolan, principal at Dolan Law and his associate Karen Munoz represent victims of wrongful death and personal injury. His column “Law and Wellness,” appears in the Chicago Lawyer and her column appears regularly in the Law Bulletin. This week’s column is written by Karen Munoz.

Many of us are probably familiar with some of the problems with hourly billing. It has been the principal billing method for attorneys since time immemorial. This week’s post looks at some of the issues with and alternatives to hourly billing.

1. Problems

While this is not a problem unique to the legal profession, hourly billing may not reward efficient service. The most inefficient worker in a firm can be its most valuable asset which is completely illogical. Secondly, hourly billing allocates all the risk for fluctuation of time and cost, which can be pretty significant if it concerns a case that gets appealed or delayed, to the client. So alternative billing arrangements should re-allocate some of that risk to the attorney so that clients are paying for value, and not just time.

2. Value

Value can be measured in a number of ways. A client does hire you so they can pay for your time; they hire you to get results, peace of mind or a quality service. Rethinking the value of our services, both from the perspective of the client and the lawyer, leads to efficient solutions.

An example that’s often used to illustrate some of the problems of hourly billing is also helpful for re-assessing the value of our services. If you have to draft a contract for sale of goods for a particular client and you haven’t done it before, you may put in hours and come up with a top notch, watertight contract that’s perfect for the client’s needs. And it might take 30 or 40 hours. You might then have to draft an almost identical contract for a different client sometime down the line. The second time, you’ll just have to make minor adjustments and improvements which might result in you not being able to bill for a single hour. So the second client will have the benefit of a better service at a fraction of the price.

The real value of the work is probably somewhere in between. Putting a price on the service which accurately reflects its value will serve you well in the long run. For example, if you put a huge amount of time into the task the first time, but bill a fair price, you can liquidate the costs over time by all the hours you save on every occasion you have to perform a substantially similar task.

So what are the alternatives?

Flat fees are one obvious alternative that is becoming increasingly popular. An advantage of flat fees is that you’ll always get paid. Coming up with a fair flat fee will require an investment of time in estimating the value of the service based on the time put into it/level of difficulty/amount of money the case is worth which can be difficult at first.

Unbundled Services is a term used to describe the provision of specific discrete services to clients who are otherwise proceeding pro se. This has the advantage of bringing in clients who need help can’t afford to pay the fees for your full work.

Contingent fees are obviously only possible in litigation scenarios and, depending on the nature and complexity of the case, may not always be appropriate. But they should not be thought of as being confined to personal injury cases and they can offer a viable alternative to billing by the hour.

A subscription-type arrangement is another good alternative to hourly billing, especially in a transactional setting. So a business could subscribe to one of a number of monthly legal services packages depending on their needs. This has the advantage of being predictable to both attorney and client and, with experience, the price will very accurately reflect the value of the work done.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s