In a Legal Rebels blog post titled "Time to Blow Up the Billable Hour Formula," author Michael Roster writes:
It’s time we face a fundamental problem that’s existed for the past 35 years after we moved away from fixed prices, retainers and other approaches that had previously been used and instead went to fees based solely on hours. Hours are performing two diametrically opposed functions.As corporate clients continue to look for ways to cut costs in 2013, the law firms that can respond with value-based billing arrangements for high quality legal services are likely to have a happy New Year (or at least more so than those firms that maintain high overhead cost structures).
First, they are being used as a unit of production where we can budget how many hours are needed for tasks and then see if there aren’t ways to improve efficiency. But that means—as we do in manufacturing and everywhere else—looking at ways to reduce the number of hours for a task and ways to reduce the cost of those hours (that is, the internal cost of production).
Yet law firms simultaneously have made hours the basis of profitability, which means benefiting from more hours being applied to a task and continual increases in hourly rates.
You can’t have the same unit (hours) functioning simultaneously for these two opposing purposes. The problem has always been with us but has come to the forefront as clients and firms increasingly use fixed fees and other alternative arrangements.
Which means it’s time to blow up the formula.
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Legal marketing consultant Margaret Grisdela is available to discuss business development goals for small to mid-sized law firms. Contact her at www.legalexpertconnections.com, www.insurancedefensemarketing.com, at 1-866-417-7025, or via email.