Thinking beyond tradition: How the billable hour is costing you money
As lawyers, most of us have been told along the way that long hours are the only way to get ahead. It’s tradition. It’s status quo. Whatever the reasons given, the people pushing traditional law firm models won’t admit that the traditional model has flaws. In fact, the billable hour is costing you money and time, most likely.
The billable hour’s biggest flaw
A Colorado lawyer we respect a lot, Lauren Lester, has built her independent law practice around a new law firm model. In fact, she titled her blog “A Different Practice.” In it, she shows how solo lawyers can create a new approach to law practice.
In a recent entry, Lauren highlighted one of the billable hour’s biggest flaws:
“Admin time is generally the time we spend running the business. From buying office supplies to running payroll, they are activities not directly related to delivering value but are necessary to be able to. While we should never bill clients directly for this type of work, if we structure our fees based on our hourly cost and not an arbitrary hourly rate, we can bake in some of the cost for admin time so we aren’t losing it entirely. Additionally, we can become more efficient.“
In that blog, she also cites research that shows lawyers spend just 1.6 hours per day on billable work. When you consider that an independent lawyer must rely on those billable hours survive and to pay the bills, it’s clear that something must shift. The billable hour does not really capture the value a lawyer provides, nor does it account for all the work necessary to run a law practice.
The billable hour reward inefficiency and stunts innovation
In another opinion piece for Lawyerist, Christian Denmon laments the billable hour’s lopsided model:
“The billable hour guarantees every hour that you spend on innovation takes away from your income. After all, you only have twenty-four hours in a day. And if you allocate time away from billing clients to innovation and technology upgrades, you will be decreasing the total value of your case under the billable hour.”
Spending four hours on a project that could take one might result in more time billed in the short-run. Consider how that time could be better spent creating more efficient systems. When you streamline processes, and invest in technology, you can reach more clients and generate more income.
A new approach
When your billing model focuses on value delivered, rather than time spent, both your firm and your client benefit.
Your client will know from the outset what a certain set of services will cost, which eliminates some of the tension that open-ended billable hours creates. It can also help prevent billing disputes once the case is closed.
When you package services for a client for a set fee, it allows you to plan your caseload accordingly. In addition, the fees charged will cover everything from the technology used to admin time to face-to-face consultations with you. Everything that goes into servicing that client gets tallied in the final fee.
As we spend more time discussing productivity, efficiency and work-life balance, consider your goals. What do you want for your life? For your law practice? For most of you, I would bet “more time at the office” won’t make that list. How you manage your time, and how you run your law practice, can make all the difference in whether or not you achieve those goals.
To learn more about growing a new law firm, contact us. Whether you need a lawyer executive suite, lawyer coworking or another shared office arrangement, we have what you need at one of our three central Denver locations.