The Evolution of the Legal Model: Why Billable Hours No Longer Work
Over the past few years, several reports have proclaimed boldly that the billable hour is dead in the field of legal services. Has this billing method really become obsolete, why and is there a better alternative out there?
Reasons Why the Billable Hour is Becoming Obsolete
In order to be profitable, a law firm has to discover the best way to bill clients for its services. The billable hour has been setting the standard for some time, but a number of issues stem from the use of this methodology:
- Charging clients by the hour often leads to highly inflated prices. A client will be charged, whether the entire block of time is used or not.
- The billable hour will often lead to client animosity. The client will get charged whether they get a positive or a negative outcome out of the interaction. In addition, the billable hour endangers the positive relationships that is so essential for building trust and forming a partnership between a lawyer and a client.
- A client will find it difficult to come up with a preliminary and accurate estimate about what they’re going to be charged. Not knowing how much legal services will cost can contribute to a lot of anxiety and uncertainty.
- Billable hours can also result in a lot of inefficiency inside the law firm itself. Prolonging litigation and inefficient practices can often be prioritized for the purpose of charging clients more. As a result, the overall reputation of the law firm will suffer.
What is the Alternative?
According to the Report on the State of the Legal Market, power dynamics are shifting. Clients today have higher standards and more demands. They insist on getting value for the money spent on legal services. As a result, billable hours don’t really make a lot of sense in a dynamic that is slanted towards the client (and rightfully so!).
Another factor is also pushing legal companies to offer both quality and cost-efficiency. The competition is higher than ever before. According to the American Bar Association, the total national lawyer population has gone up from 574,910 practitioners in 1980 to 1,022,462 lawyers in 2000 and 1,335,963 attorneys in 2017. Most of these professionals (about 74 percent) end up in a private practice. If a client in need of legal assistance is dissatisfied with one service, they will easily find a quality alternative that is much more cost-efficient.
The switch away from billable hours is an obvious one but which billing method can deliver better, more sustainable results?
Flat fees have more or less risen to popularity in the legal world. Whether an attorney needs five or 10 hours of work to complete a task for a client, the fee will remain the same. This model results in predictability and it makes it easier for clients to plan the process in advance.
Depending on the field of practice, outcome-based payments could also make sense. An attorney will get paid when they help clients get a positive result. Needless to say, this model provides additional incentives for legal professionals to offer their clients the most adequate and tailored assistance every single time.