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To Bill Hourly or an Alternative in Law Practices

In 2019, the Financial Times of London published a rather spectacular article on corporate billing and the billable hour.

The article stated first of all that the vast majority of clients hate the billable hour for a few reasons, one of which they have no idea ahead of time how much a particular legal solution will cost them.

In addition, corporate clients say that billable hours by the top attorneys at a firm tend to set a higher bar for billable hours by younger, less experienced lawyers. In other words, clients are paying a premium price for less talented and less experienced attorneys. Sometimes that rate can be as high as $300 an hour.

And some corporate clients are fighting back. Deutsche Bank, for example, sent shockwaves in the legal system by announcing in 2017 that it would no longer pay for work performed by trainee lawyers.

However, the vast majority of corporate clients, although they find the idea of the billable hour not tenable, tend to grin and bear it for failure to lose the counsel of a valuable legal team.

The billable hour has been a tenet of law firms for so long that there are seemingly few alternatives.

Fixed billing

The main alternative is fixed billing. This forces a law firm, like in playing poker to show their cards.

This had significant advantages and disadvantages. If fixed billing is applied, then that is what a law firm will get.

Many legal cost experts say that fixed billing encourages a law firm not to drag out legal matters in order to build up fees.

Alternatively, most law firms argue that many legal matters are difficult to predict how long and how complex they can be such as merger and acquisition cases.

However, according to Wisetime.com, a 2016 Lexis Nexis survey of clients one a fixed fee basis with their law firm would recommend their Law Firm to other clients 7 out of 10 times.

However, only 45 percent of clients who were billed hourly would recommend their law firm to another potential client.

Billing experts also warn that fixed fee billing can be a double-edged sword. If the law firm underestimates the task, they may lose or barely make any money in taking on the case if extenuating circumstances push the case into overtime.

At the same time, if the law firm pulls off a major coup and the other party concedes the case early, the client may feel cheated that they paid this much when if they were billed hourly the rate would be significantly less.

Fixed fees are the new model

Not all, but many legal startups are increasingly operating on a fixed fee basis. For example, Frank Marsalis, a car accident lawyer in St. Petersburg, charges on a fixed fee basis.

At the heart of this is that with fixed fees, not only can a new firm more easily acquire new clients, but new technologies are emerging that let a law firm estimate with greater accuracy how long a task will take to complete.

And there are plenty of data available by tech companies by analyzing hundreds, if not thousands of legal cases.

Another way that clients can compare costs quickly is using legal firms such as Priori Legal,

Priori Legal matches legal firms that bid on various legal tasks. By matching up clients with vetted law firms, Priori Legal claims to be able to help many clients, particularly small and medium-sized businesses, cut their legal expenses by 60 percent or more.

Forbes Magazine in 2017, published an article entitled, "Why The Billable Hour is Dead (Or Should Be"

There is no doubt that the billable hour is slowly dying, or at the very least, firms with billable hours will agree to put a cap on them.

Ultimately, with technology at its side if billable hours do not slowly take a back seat to fixed fees, at the very least there will be data to show that it makes sense.

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