19. A dozen better ways
to bill by the hour
The focus of this book is about to switch to the alternatives to the billable hour. But before going there, and recognizing the reality that most law firms are not going to abandon the billable hour, here are 12 ways in which the concept can be made more benign:
1. Talk to your client for free: Consider a radical step — don’t bill your time for talking with your client. This might be more practical in some matters than others. There are instances where communications with the client form a very high proportion of total time and, where that is so, writing off all your client communication time would mean working for little pay.
But in a lot of other cases, client communications are a relatively small proportion of the total. In those cases, adopting a “no-charge” policy can alleviate some of the concerns about hourly billing without costing the lawyer too much. Most obviously, it addresses the issue about the chilling effect that the ticking meter can have on attorney-client communications.
The anomalies about six-minute minimums and increments don’t go away if you stop billing for client communications, but they may, at least, become less glaring — charges that reflect these types of anomalies tend to be especially grating where the client was a part of the billed-for communications. There must surely be nothing worse than a call from a client saying: “I know that call didn’t last six minutes.” And even if a client doesn’t actually call and tell the lawyer that, there’s a good chance that the thought is there anyway.
Even if the nature of the representation means that not charging for any client communications isn’t practical, consider not charging for very short or incidental ones. Limit the charges to those communications where you were substantively counseling the client as a lawyer.
2. Don’t charge for perfunctory communications in general: Consider not charging for other phone calls that last only a few minutes. Likewise, don’t charge for most short emails.
Some lawyers argue that they have to record even very short events, because the purpose of time records is not just to generate bills, but also to keep a log of activity that may be needed for other purposes — for example, establishing the fact that certain communications took place and defending against malpractice claims. Fair enough. But the fact that something goes in a time record does not mean that it has to go on the bill.
3. Ban the 12-minute minimum and increment: When you do bill for short events, apply six-minute minimums — not 12-minute ones. And if you are charging for very short events, batch them together rather than applying six-minute minimums to each. Even if you do apply 12-minute minimums, don’t go up in 12-minute increments after that — stick to increments of 0.1 hours.
4. Charge less for mundane activity: Charge half your normal hourly rate for travel and waiting time.
5. Be careful about multiple meters: Don’t make a rule of charging for more than one lawyer’s time when two lawyers talk about a case unless both are adding value. For example, the delegation of a task from one lawyer to another is really an internal management function for which a client shouldn’t have to pay. Arguably, neither lawyer’s time should be charged when that takes place.
6. Keep targets reasonable: Avoid annual billable hour targets of more than 1,600-1,700 hours. If someone has a crazy year and goes overboard with their hours, that’s fine — and doubtless they should be compensated for their extraordinary efforts. But this shouldn’t translate into a policy that requires or even encourages mega-hours.
7. Allow pro bono to count toward targets: Allow reasonable amounts of pro bono time to count toward a firm’s billable hours requirement. It’s good for the practice of law. And it’s good for a law practice — savvy lawyers know how pro bono work can — despite its altruistic nature — help the development of paying business.
8. Train lawyers about time: Give new lawyers in your firm training about how time should be recorded. Don’t just tell the new lawyer: “Record all your time.” Address the practicalities and detail of what this involves. Produce a written set of policies. Have them read this book!
9. Produce detailed descriptions: Provide reasonably detailed logs that describe the work performed during time that is being billed. The whole point of hourly billing is meant to be its “transparency.” So, for example, don’t merely log a phone call as having taken place. Indicate what it was about. Don’t just log: “Review documents, 3.2 hours.” Indicate what documents and why. That makes you more accountable for the value delivered, even if you are charging for time.
10. Think value: Likewise, even though you are billing by the hour, analyze the value given before you send out the bill — write off time when there is a clear disconnect between the time and the value. Don’t charge for learning on the job when the client had a reasonable expectation that the lawyer(s) it was hiring knew how to do the task already. By all means show the time you have written off as a “discount” if you want to earn kudos.
11. Consider hybrids: Even if you aren’t willing or able to cast aside the billable hour in its entirety, consider hybrid arrangements that allow individual fee agreements to contain some aspects of alternative billing. The next few chapters should give you some ideas.
12. The smell test: Apply a simple test in deciding what to do and what not to do: “If the client knew what I was doing and my mindset in doing it, would I be embarrassed?” If the answer is “yes,” don’t do it.
A 13th suggestion: Don’t nickel and dime with expenses
Actually, I’ll throw in one other suggestion and make this a baker’s dozen. This one isn’t strictly about fees, but it is closely related. It has to do with the other thing that goes on the bills you send out — expenses.
Few things are more off-putting to clients than the sense that they are being nickel-and-dimed. Therefore, think very hard about what types of expenses you are going to try to recover.
Maybe there was once an era when long-distance phone calls were so expensive that they were a legitimate cost to pass on. (Remember the old movies, where people would drop everything because someone was “calling long distance?”) But those days are past. You are charging enough for your time in talking on the phone. Trying to recover the cost of the call is petty.
The same goes for ordinary first-class postage. By all means charge for the cost of sending out a Fedex, but don’t charge for first-class mail. (I remember once hearing a story about a law firm that sent out a bill whose only item was the postage cost of the previous invoice it had sent out. Can that be true? Who knows?)
Some firms levy some sort of a percentage surcharge to cover miscellaneous overhead expenses — for example, a 2.5 percent amount added to every bill. This reminds me of irritating cover charges. Or arbitrary “resort fees” in hotels. Charges like this annoy clients. What would you think if your car mechanic added a percentage to the bottom of the bill to contribute toward overhead? Your clients probably think the same if you do it.
Charging for online legal research services like Westlaw and Lexis is another practice that annoys people. In the past, these services operated on a “transaction” basis — law firms paid by the search or retrieved document. These days, however, virtually every law firm has a flat fee allowing unlimited use of the portions of the service to which it subscribes. (If there are still firms out there that aren’t on a flat fee, they’re nuts.)
Despite this, some firms continue to charge clients per Westlaw or Lexis transaction — often profiting on the subscription. Others divide up the flat fee so that clients pay an amount corresponding to their percentage use of the service that month. (That is an odd arrangement, because the amount a client pays becomes a function not just of how much the service was used on that client’s behalf, but how much use of the service was made on behalf of other clients.)
Neither method of passing on the cost makes any sense. Clients aren’t charged a “book fee” if a lawyer goes into a firm’s law library to conduct research. The lawyer’s time in doing so is already being compensated. Therefore, it is irrational to charge for use of similar materials just because they happen to be online.
What’s more — despite a common misconception — the online legal research services really are not that expensive compared to the legacy, hard-copy alternatives. In fact, in my practice, I would pay much more if I maintained an old-fashioned law library than the amount I pay each month to Westlaw.
Legal research is central to the practice of law. Charging extra for the tools is like a hotel charging extra for use of beds.
I could give other examples about nickel-and-diming, but the message can be summed up as follows: Keep your bills clean and simple. Do not add lists of “extras.” Ultimately, they do you more harm than good.
The only expenses you should seek to recover are those that involve payments to a third party of an identifiable and non-petty amount that you have incurred specifically in connection with your work on a particular matter and that would not have been expended otherwise. Even then, don’t mark up the costs.
You’ll be surprised at how much goodwill this type of policy engenders. And guess which bills clients pay the fastest — those that irritate them or those that they think are fair?
It’s not simply about short-term revenue
A common reaction to the suggestions in this chapter — and to much of what is written in this book — will, no doubt, be that it is simply a manifesto for lawyers slashing their bills and, hence, their incomes. And who in the legal profession wants to line up behind that ridiculous idea?
But it isn’t as simple as that. See my comments in Chapter 17 about how, putting aside short-term revenue effects, alternative billing can help to grow a practice. Actually in this chapter, I haven’t even gone very far up the “alternative” route. For that, you need to read on.
Entire contents © 2008 John Derrick