The Challenges of Leaving Behind Hourly Billing

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Is Moving Away From Hourly Billing Easy?

No is the simple answer, but one year later we know a lot more than when we started. Moving away from hourly billing is like any entrepreneurial journey in that you must jump in with both feet and learn and recalibrate as you move through.

I really felt after I had explored why and how we launched Frank Fee, it was time once again to be frank and look at the hurdles that had to be cleared. Many of these challenges seem daunting, but we are so glad we are on this journey. Below, I outline the challenges we’ve experienced in the switch from hourly billing.

1. Creating Pricing Guidelines?

It took six months and many hours invested for us to launch our pricing guidelines. It began by creating a list of the types of projects that we regularly worked on. We ended up with 40 categories, and then we had to determine what factors should be considered when we priced a project. We also had to weigh the individual factors, sometimes establishing an incremental weighting for each factor. This was a lot of work.

Let’s look at a fairly straightforward project such as an incorporation. Here are some of the factors that we consider:?

• Federal or provincial incorporation
• Number of shareholders
• Simple, single common share structure or robust multi-class share structure with built in growth and freeze shares?
• Accounting or tax advice present

2. The Scope of Work - Engagement Letters

A necessary step in the switch away from hourly billing is to clearly describe the scope of work in your engagement agreement. We needed to establish templates for scope of work as being absolutely clear on what we were to deliver became critical as we were locked in at a price. How do you deal with a quickly changing landscape?

As an example, we needed to consider what happened when a project was cut short for some unexpected reason? We often use the strategy of providing a certain amount for the completion of a project with an estimate of the breakdown for each of the stages, along with a fallback that if the project is not completed, the fee is prorated based on the work that was completed.

3. Talking About Money?

When you bill by the hour, you can often avoid talking about money until the project is completed. Calculate the hours, multiply by the hourly rate and let your client know the total cost. When you switch to fixed fee billing, there is no avoiding the conversation about money. It takes place early in the engagement, and can naturally be uncomfortable at first. It takes experience to get used to having these conversations and establishing the price before work has begun.

4. Pricing is an Art, Not a Science

It takes a lot of practice before pricing starts to get easier. Listening is so important to find value for a client and each client is unique. Learning to provide options is work and takes time. I barely used pricing options before we started Frank Fee, but it has become an approach I use often.? Here’s a simple set of pricing options for an M&A transaction acting for the vendor:?

1. Fixed amount for each stage of the transaction
2. Monthly working fee with success fee if transaction completes
3. Monthly amount while working on the transaction

5. Reluctance To Change??

Every strategic change initiative takes lots of planning and it is important to be inclusive in your approach. This is not the time for “telling”, but rather to be interested and curious in what everyone at your office thinks. It takes a firm-wide embracement of the changes, or adoption will be slow.

In our case, we put a lot of effort in getting everyone involved in creating the pricing guidelines and we emphasized the importance of learning from each experience so that we have a strong continuous culture of growth. In hindsight we could have spent more time internally on the skill set of pricing with more role playing and mentorship, but that is where we will spend a lot more time in year two.

6. Not Wanting To Work For Free ?

This is likely the most significant challenge. In society, let alone in the legal industry, lawyers do not feel it is right to work for free. The feeling is that if you are not being paid for every hour you put in for a client, something is wrong. Trying to shift the fixed mindset away from this is difficult to say the least.

It takes time to show on balance that fixed pricing works. Sometimes you don’t achieve your hourly rates and sometimes you exceed your hourly rates, and in both cases you will invest time and effort in building great systems and delivering lots of value to clients. It is okay to help someone out regardless of how much is at stake.

So Are The Challenges Worth It?

Absolutely is the unequivocal answer. Our systems are so much better, and we are so much more efficient with our time. Clients are supportive of price certainty, and we get returning clients and new work because of our approach to pricing.

It still feels like we are just at the beginning of our learning, but we are excited about what lies ahead. Always looking for your thoughts, so please jump into the conversation.

Until next time,

Digby