Robservations heads-ups lawyers if you're using hourly billing...

There are still many legal firms that have hourly billing as some part of the mix in their pricing...

There are very good reasons why for quite a few legal services billing by the hour is not as useful to client or firm as fixed fees or value-based fees.

In this issue however I want to leave aside the wide debate about what’s the “best” billing approach for firms, and focus on passing on some particular experiences from the trenches that should be thought-starters, and of some benefit where you are still using hourly rates in your firm’s pricing mix.

Some Robservations...not in any order of importance.

·??????Many firms do not review hourly rates often enough. In a recent example, nine years!

·??????Many firms’ rates are too low for the value and quality of services they provide.

·??????There are plenty of clients who will pay more for genuinely experienced good communicators who give them professional reassurance.

·??????Some firms have rates for quite inexperienced lawyers set too high, and very often the rates of their very experienced lawyers set too low (more on this below).

·??????Not enough firms have varying rates for individual lawyers for different types of work, for different clients (including established vs new), and where appropriate for long-running matters and new matters.

·??????Too few firms have simple, automated, systems, for tracking Key Performance Indicators, such as actual average rate time is recorded at, actual average rates work is invoiced at, and clear graphs of trends in these and others that are also important.

Every single week I see examples of lawyers recording ClientTime? at average actual rates well below their target averages, and later going on to invoice that time at actual Realisation Rates below those targeted.

·??????Even when such systems do exist, many do not react early, or at all, to the data (evidence) that there may be problems with present realities of what is happening compared to what was assumed would be a reasonable scenario, and hence was planned/budgeted for.

What are the causes? Probably an amalgam of these...

·??????Fear of not getting the work if rates and fee estimates are higher...

·??????Lack of self-esteem/low confidence...

·??????Insufficient new work enquiry levels don’t assist with confidence.?

·??????Lack of practical responses to the basic logic that that as people get more experienced they should be doing their work more efficiently, and progressing into more difficult work with capacity to charge better.?

It takes an experienced eye, with the focus and available time, to spot failures to develop reasonably as opposed to complete performance disasters that “blind Freddy” couldn’t miss.

·??????Available time, (and especially perceived available time), and sufficient remaining energy, are clearly important.?

A regular Robservation over the past 34 years consulting in small-medium law firms is that what is behind what happens in legal firms that is sub-optimal can almost always be traced back to someone not perceiving they have enough quality time to keep their eye on key balls in the air, with enough energy left to notice what they need to notice, and to take effective steps to do what’s needed to begin the fixes.?

The main downside...

Productivity is just meandering, not being focussed on and managed.?

There is a persistent waste of resources that have been invested in, and paid for, that should be generating more post break-even, where a firm’s profit (lifeblood) gets produced, resulting in a huge impact on profitability affecting cash flow, liquidity, and even viability.

Recommendations...

·??????Driving up good quality enquiry with effective, consistent, business development, and systems for effectively screening out inappropriate work, will improve confidence around more realistic rates (and of course the same for fixed prices and value-based pricing where appropriate).

·??????Regular review of any hourly rates the firm uses, at least half-yearly. More often as observed to be a worthwhile opportunity.

·??????Monthly tracking of clearly laid out evidence (generated automatically in good formats) as to actuals being achieved compared to WorkPlan? aspirations, that will identify any areas of deeper diving necessary.

I find this most effective at the individual level, and discussion with each team member can be directed at understanding where things are going off the rails and practical steps needing to be taken for fixes.

·??????It’s by no means all about negatives that need to be identified, addressed, and fixed. It should be noted that this regular careful observation can also identify...from evidence of things going particularly well...opportunities for game-changing tweaks in approach, by either individuals or teams, that may have otherwise gone unnoticed.

·??????Where team leaders have increased allowance for FirmTime? to facilitate all aspects of their team management, keep a watchful eye on their personal management.

If they are expected to do less ClientTime? as an obvious consequence, explore all opportunities for using the lesser amount of the day that needs to be filled with probably invoiceable work more effectively.

The flipside of potential for reduced confidence through not having enough work is the potential for charging better when you have too much, or expect you will soon. This obvious (and well-tested in practise) reality is often ignored.

·??????It is almost always possible for experienced Principals to be building the percentage of their own work that is at top rates that contain real “stretch” rather than merely fiddling around the edges.

A simple example under-pinning a blended rate might be:

15% of work on long-running matters at old rates that for one reason or other cannot reasonably be changed now,?

75% of work at current “standard” rates, and...

10% at an “edgy”, market-testing, rate that can be experimented with partly because the Principal is in big demand and does not need to be starting any new relationships at rates that are now not reflective of their value.

Actual numbers will depend on each firm and Principal and their work, but just in terms of “spacing” between rates, these might be useful: $385, $465, and $685.

Having a very high rate at the top end, with an aspiration initially to have just 10% of your work at that level, is a “bite-size chunks” approach! All the numbers can be, and should be, reviewed very regularly.

Anyone still reading who is a fan of fixed prices and/or value-based pricing, will discern that, well-applied, those techniques can make getting to 10% recovery of a very edgy rate a walk in the park.?

Summation...

When using hourly rates as part of the billing systems mix, it is not useful if treated as a set and forget exercise, whether by design or through the wrong team members being too busy.

So many law firm revenue budgets are effectively under-pinned by amounts of hours to be invested and expected hourly rates for billing.

If any part of your firm’s financial health is invested in that methodology, I trust at least some of these Robservations have been timely reminders, thought-starters, or both.