Mike McDerment, creator of my favorite timekeeping and billing software, FreshBooks, has come out with a book about ditching the billable hour. If you want to understand difference between time and value, just read Breaking the Time Barrier. It is a quick read; in about an hour, McDerment will get you up to speed on the fundamental difference between churning billable hours and delivering value to your clients. And it won’t cost you a dime, because the book is free (the idea is obviously to promote FreshBooks, but the content of the book is not the least bit promotional).
Moving from time to value
Before he started building FreshBooks, McDerment was a designer. Then, he decided to make a drastic change to his design business, in part to free up his time to start building FreshBooks from his parents’ basement. As part of that, he ditched hourly fees and switched to value billing (somewhat ironically, while building a product geared towards timekeeping, not value billing).
So why am I reviewing a book written by a designer? Well, because design businesses are services businesses, and so are law practices. There are enough similarities in the way designers and lawyers deliver value that I think this book is worthwhile reading for lawyers.
That said, if you decide to try value billing in your law practice, just make sure you know how to do it, consistent with your state’s ethics rules. I’m not going to go into ethics in this review, but that doesn’t mean ethics are irrelevant. If you want to try alternative billing arrangements, make sure you know the rules that might apply.
Value is a much-abused term. Take it at face value, and use it to mean things that are actually valuable to your clients. McDerment wants to get you to stop thinking of services as a commodity. In other words, push back against the current market’s drive to turn everything into a set of forms that a monkey can complete.
The value you deliver is not a will or a plea agreement or articles of incorporation. Successful lawyers already know this. Anyone can go down to the Secretary of State’s office and create an LLC. People who come to you expect more than just a markup and a better-looking form, even if they don’t know exactly what they expect.
Value, McDerment emphasizes, is always value to the client, not value to you. Your job is just to uncover the value that your client needs as opposed to what it thinks it wants.
Part of the difficulty with value billing is convincing yourself that it’s a good idea. Once you’ve done that, it is equally important to know how to talk about value billing with your clients. Whether or not your clients are used to paying lawyers by the hour, you have to talk about fees differently if you want to change the way you set them.
Talking about value
Most experienced, successful lawyers know intuitively how to talk about value. If you need an example, just look at the way New York criminal defense lawyer (and blogger) Scott Greenfield talks about his practice on his website.
The simple truth is that the best possible result comes from a position of strength, not weakness. The only way to defend from a position of strength is to think “outside the box” to find innovate approaches that relate to the specific set of circumstances for each defendant. To develop a strategy that gives each defendant the best possible hope of success requires enormous effort.
Consider this when deciding who you want to represent you. Does the attorney approach your representation with his focus on you and your particular situation, or does he trivialize your concerns and just say “don’t worry?” Does the attorney tell you that he’s handled cases like yours a thousand times before, without recognizing that you are not “like everybody else” and deserve to receive legal representation specifically designed for your needs? Does the attorney have the experience and reputation to follow through on his promise that he will fight for you?
Scott is not selling a plea agreement. He is selling his ability to develop a strategy tailored to each clients’ needs based on his 30+ years of experience. He even takes the time to explain the role he plays in crisis management for his clients — an added value other criminal defense lawyers may not offer. Whether or not he bills by the hour, Scott is selling value, not time.
You will hear most experienced lawyers talking about their services in much the same way. This is the same kind of redefinition of value that McDerment talks about. Lawyers who want to switch to value billing have to learn to solve legal problems, not just provide legal services on demand.
When you go to a doctor, the doctor doesn’t ask you for a diagnosis. She asks you for the symptoms, then determines the appropriate treatment. It’s the same for lawyers. A client who just asks for a will may actually want an estate plan. A client who just asks for an estate plan might regular check-ins to keep it updated. Or, a client who asks for help with an elaborate stock offering may only need a basic stock subscription agreement.
Coming up with the value of your services
McDerment walks through the process of talking about value with clients. Or, rather, asking clients about the value they hope to get from your services. He explains that, ideally, your clients will view your fee as an investment rather than an expense. That requires getting to the bottom of the legal problem your client has, and crafting a solution to meet it that your client will find valuable. Look beyond the immediate need to the greater problem, in other words.
Sure, McDerment is talking about designers, but the same sorts of conversations should be happening in your initial client meetings, even if they aren’t identical in substance.
Only when you know what value the client attaches to the services can you set an appropriate fee. It is also possible that, once you know the value to the client, you cannot set an appropriate fee. This happens all the time when it is not worth it for a client to hire you. Every tenant facing an eviction action, for example. In fact, you probably talk about value all the time when those clients call you.
Let’s face it, talking about value with your clients is simply doing your job. Determining the need and setting a fair price to meet it is, after, all, what we are supposed to do. McDerment’s is basically just a reminder of this, and a guide on how to do a better job of it.
And, just to be clear, alternative-billing arrangements may not always be appropriate. McDerment may be talking primarily about flat and recurring fees, but what he’s really talking about is shifting away from time when time is not the appropriate way to measure value. Sometimes, it may still make sense to bill by the hour. Or, you could just decide not to accept certain cases. The important thing is to take the focus off of time and put it on value, then bill accordingly.
Breaking the Time Barrier is written as a “parable.” In other words, it’s a make-believe story of a designer who gets frustrated with his business and then sits down with a friend in a coffee shop to talk about fees. It’s an annoying way to make McDerment’s argument.
Here’s an example:
“You’re stuck on time, aren’t you?”
“But we all have only so much time. Time is money, isn’t it?”
“We do have only so much time,” Karen said, “which is why you need to divorce yourself from the time model. It will limit you. You and I share one thing in common—the number of hours in your week is the same as in my week. I could walk around the marketplace with a higher hourly price tag on my forehead than you, but that still puts a revenue ceiling on my business. Plus, it doesn’t serve my clients.”
“What do you mean?” Steve stirred his cappuccino.
Ugh. The E-Myth Revisited uses this style, too, and I found it just as annoying in that book.
Who should read Breaking the Time Barrier
Just go read it. Seriously. It’s free and it will only take up about an hour of your time, and you will probably learn something, be inspired to change something, or be reminded of something important about the way you bill. If not, come back here and tell me I wasted your time, and I will draw you a picture of a cookie for your trouble.
But now, go get the book.