I reject the idea that the time it takes me to do work is necessarily a good measure of the value of that work. My firm uses hourly billing only in very limited circumstances. Instead, we define the work the client wants and decide a value, instead of leaving both those things uncertain, as happens in the average hourly fee representation.
Here is why—and how—we stopped hourly billing.
Time is not intrinsically valuable
Should you be paid more for something that takes a long time? Only if you are both good at doing that thing, and efficient, too. Should you be paid less for something that takes a short amount of time? It depends entirely on what you deliver. A poor product delivered quickly is no better than a poor product delivered after a lot of work.
Hourly billing makes a firm’s slowest, most dim-witted lawyers its most-valuable assets. Not because they produce the highest-quality work, but because they bill the most hours. Firms may endeavor to cull the ranks of such employees, but there is a wide gray line between efficient attorneys and the good-but-slower attorneys who rack up the most hours. Somewhere on that line are the all-star billers.
How much should you charge for a contract you spent 20 minutes adapting, if it took you 20 hours to draft it for a previous client? The second version is probably worth more, but if you use hourly billing, you cannot bill your client for that added value. Should the first client have paid more for version 1.0? (I am aware that, in this situation, some firms switch to “value billing” and write down a “more appropriate” time for the product delivered. That is not value billing; that is unethical unless the client knows and consents.)
The value of the work you do generally increases as you can experience, but you cannot increase your hourly billing rate enough to make up for that increase in value. Can you realistically bill the first client $150 per hour while you draft version 1.0 of a document, and then bill the second client $1,000 per hour for version 1.1? (No.)
Hourly billing devalues quality time
How much could you have billed while you watched your daughter’s soccer game? Your son’s piano recital? Dinner with your wife? Volunteering with your church? When you count your money by the clock, every moment away from your desk becomes a cost-benefit proposition. I never want to consider my wife or daughter as a cost of doing business.
Fixed fees encourage a big-picture, quality-centric approach
Hourly billing encourages myopic thinking—this case, this motion—instead of looking at the bigger picture. It encourages lawyers to reinvent the wheel with each new project. Flat fees, on the other hand, encourage big-picture thinking.
For example, we sometimes handle a motion where the work involved would far exceed the hourly value of our fee. We do it because the motion will result in forms and a memorandum we can revise and re-use in the future. The motion—or the case—becomes a loss leader, but time saved in future cases more than makes up for it.
Thinking of each case as additive encourages your firm to acquire institutional knowledge, and to improve every matter by building on the last one. This not only saves time, but it increases the quality of the product the client receives.
How to estimate value
Despite everything I have just said, it probably makes sense to start estimating value with reference to time. I do not mean that you should pull out your last timesheet, though.
Consider the task you are trying to set a price for. If you start the project in your forms folder so that you can re-use as much of your work product as possible, how much time will it take, on average, to repeat the task? Make that a dollar figure, and take the following into consideration before you decide that is the right number.
Are you likely to repeat the task, or is this a one-off project? If it is a one-off project, you may not be the right lawyer for the job, no matter how you do billing. You may want to use a contract lawyer with the forms and experience to do the project more efficiently. I did this, recently, for a business matter. It was easier—and cheaper—to hire another law firm to do the work, but we handled the bill and kept the client.
Finally, consider whether the average time is a good measure of value. For example, is a non-disclosure agreement you basically print out for a client worth 5 minutes of work, or is it worth $500, in light of the peace of mind you are giving your client, and the liability risk you are taking on yourself? In litigation, you may be able to dispose of a matter with a single motion that you can adapt with an hour’s work from a previous case. Is that worth one hour, or is that worth something greater, in light of the value you are delivering to the client?
Go forth and be valuable
When you buy a sandwich at the deli, you do not pay for the time it takes to assemble the sandwich, plus the cost of materials. Well, you do, in a roundabout sort of way, but those don’t tell the whole story behind the price, and you don’t care about them, anyway. You just pay $7.50 for a sandwich, which is either worth $7.50, or it isn’t.
Time is simplistic. It is one component of value, but not the whole measure. Think beyond time. Your clients do.
(Photo credit: http://flic.kr/p/4YEDue)