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Why the Billable Hour is Bad For Clients—and Lawyers

concept: the time spentWhen I started my own law practice, I made the decision to eschew the billable hour in favor of flat-fee pricing for most cases. Although I’ve underestimated the work involved in a given project on a number of occasions, I nonetheless prefer this arrangement. It provides me with greater job satisfaction and allows me to focus on the work that matters (instead of slavishly logging every tiny task I perform while working on a project). I also feel like I’m able to provide a better value to many of my clients who prefer the certainty of flat-fee billing.

It turns out I’m not alone in my dislike for the billable hour. Based on my experience, a growing number of attorneys have decided to leave the billable hour behind in favor of flat fees or other hybrid billing options. In fact, in turns out that lawyers aren’t alone in this shift. In a recent article, The New York Times profiled an accountant, Jason Blumer, who’d decided to move away from the billable hour as well. Here’s how Blumer explained his reasons to writer Adam Davidson:

“A few years ago, he said, he realized that the billable hour was undercutting his value — it was his profession’s commodity, suggesting to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem, though, was that billing by the hour incentivized long, boring projects rather than those that required specialized, valuable insight that couldn’t (and shouldn’t) be measured in time. Paradoxically, the billable hour encouraged Blumer and his colleagues to spend more time than necessary on routine work rather than on the more nuanced jobs.”

Blumer’s comments definitely mirror my own experience with the billable hour. Early in my career I worked for a large international law firm with more than two dozen offices worldwide. Shortly after I started there a senior associate took me to lunch and explained to me her belief that, in part, my success at the firm would depend on my ability to generate high yearly billable hours. She warned me that a lot of mistakes could be forgiven in that office, but failing to make your billable goal for a year would quickly result in losing your job. Indeed, the firm set high yearly billable requirements for their associates and frequently reiterated in office-wide meetings that this number was not actually a goal but a minimum. Merely reaching that number was not good enough.

In the years I worked there I saw a number of excellent attorneys lose their job after falling 40-50 hours shy of the firm’s minimum yearly billable requirement. As far as I could tell these were excellent attorneys who produced high quality legal product. They just weren’t very good at capturing their hours. Meanwhile, the attorneys who thrived there, myself included, were those who learned how to maximize the billable hour system.

I definitely believe that the billable hour incentivizes work on boring, routine projects. It also meant developing a mindset in which I was fastidious in capturing my work on even basic, menial tasks. For example, if I spent five minutes drafting an email to opposing counsel, I made sure I logged that work. After all, at the end of the year, enough small projects like that could make a difference when the partners evaluated my annual billable hours.

In order to keep my hours high, I jumped at certain types of projects like document review, taking/defending depositions, reviewing voluminous medical records, and any type of project that provided for “easy” billables. I was less excited about tackling tasks that, although more creative and intellectually stimulating, were more difficult to “capture” in terms of billable hours. Intellectually I preferred the more strategic work, but I also recognized that certain projects were better sources of hours (which, in turn, meant that they were better at helping me keep my job, earn raises, and obtain bonuses).

I know there are a lot of attorneys who don’t feel this way. I also recognize that there are a lot of good arguments in favor of the billable hour. For example, it can be very difficult to estimate the amount of work a project will require in advance. Nonetheless, I find that flat-fee arrangements are better for me, my practice and my clients.

What do you think? Do you prefer using the billable hour in your practice? Why or why not? I’ve love to hear your thoughts in the comments section.

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5 Comments

  1. Denise Nichols says:

    Hi Matthew,

    I’m struggling with this hourly vs. flat fee billing issue myself, which is what led me to your blog. I got to the entertainment law party a little late, having worked in other capacities in the music industry for about 20 years before launching my own firm 3 years ago. And unlike you, I didn’t work with a firm initially, and thus never quite mastered the ‘capturing my hours’ process. In fact, I find hourly billing a tedious exercise at best and a mundane task the rest of the time.

    That said, I do like to get paid, so I’ve been mulling over the idea of converting to a flat fee billing system by Jan. 2014. I, too, am passionate about this business and my clients, most of whom are independent artists, songwriters, or small businesses. I enjoy helping creative people pursue their dreams, even if that means some of my clients are a little slow in paying my fees.

    Thanks for this (and other) blogs about solo’ing. I appreciate any resources or insight you would be willing to share concerning alternative billing.

    Best,
    Denise Nichols

    • Matthew Hickey says:

      Hi Denise,

      Ultimately the decision to move to hourly vs. flat fee is a personal one for a solo. I feel pretty confident in my ability to estimate how long a project will take, so going the flat fee route presents less risk than it might if I didn’t have that insight. It’s bit me a few times, but I still prefer it because it means I can focus on performing the work without the tedious exercise of logging every task. Besides, it’s attractive to clients and potential clients who want certainty in terms of how much a project will cost them. Since many of my clients are like yours (small businesses and indie artists), they really appreciate it.

  2. Paul Lee says:

    I think hourly rates can be a tremendous source of stress for clients. Even though the stereotype is largely false and damaging, there comes with it a perception that lawyers billing by the hour drag their feet and take unnecessary time to move forward with a case. It can also introduce a lot of uncertainty about what may be owed in the end when all is said and done. There are definitely challenges with flat fees, like you discussed, but I think charging with that method avoids a lot of stresses for both lawyers and clients.

    • Matthew Hickey says:

      Thanks Paul. I agree entirely with your comments. Flat fee billing simply provides the client with a level of certainty about the cost of a project, and thereby removes some of the stress associated with working with an attorney.

  3. JR Zarco says:

    The problem as I see the fixed fee arrangement is a cerain abuse by clients. I had one send me an average of 40 emails a month with over 460 emails for several projects., spanning 4 months What I have noticed is that the client assumes that he can abuse the arrangement with unnecessary or redundant emails. In one instance I stated that the question was answered already in a previous email. If they are charged for their calls/emails, then they will limit those contacts and certainly pay attention to the ones being received. Maybe a fixed fee arrangement should state the limit on email correspondences per project, or any excess will be billed at the standard hourly rate.