At what point will we all finally agree that the hourly billing model is bad for business? The billable hour is the archaic product of the industrial revolution. It has been used by law firms since the mid-20th century in an attempt to cut down on inefficiencies and maximize profitability. Rather, it strikes terror into the hearts of law students everywhere, and has become synonymous with inefficiency, over-billing, and high risk, low return. The billable hour is indicative of a broken system. (For more information on this topic listen to this episode of The Gen Why Podcast, or visit www.genylawyer.com) It has also proven to be a terrible business model for most lawyers and firms.
In a recent study conducted by Clio which evaluated data obtained from their approximate 40,000 users, it was concluded that “The average small-to-midsize firm only collects 1.5 hours of paid work for each workday.” You’re not only working like a factory employee in the 1880’s, you’re also getting paid about the same for your efforts too. Well, that may be a bit of an exaggeration, but most attorneys are essentially working a $30 an hour job, if you consider the number of hours worked on average in relation to the average collected hourly rate.
If you knew going into your law practice, that you would be earning on average $30-$50 per hour for your work, would your decision to be an attorney be impacted? If law was your ticket to glory and riches, you took a wrong turn. Sure, not all attorneys bill the same, and some are collecting 100% of their billings, but by in large too many attorneys fall into the category of working too much for too little. And as disheartening as that may be, it pails in relation to the residual impact of the hourly billing model on the attorney themselves.
The hourly billing model has not only been bad for business, it has cannibalized its industry by destroying its practitioners from the inside out. It has created a ‘time is money’ mentality that has convinced generations of lawyers that the opportunity costs to more richly participate in the joys of the human race are outweighed by the seduction of more. More money, more recognition, more control, more time, more hours billed.
The great fallacy, that has been instilled in those same generations of lawyers, is that there is more happiness in life in exchange for the more that they are seeking, when seeking more demands their time more than their knowledge. If the industry kills its practitioners, the industry kills itself. And as has been demonstrated, many in the industry are miserable, consumed, self-abused, and looking to leave the private practice of law to find hope for their lives elsewhere.
In a recent landmark study conducted by the ABA and the Betty Ford Foundation, it was found that about 21% of attorneys studied screened positive for hazardous, harmful, and potentially alcohol-dependent drinking; 28% struggle with depression; and 19% deal with problematic anxiety. Data suggests that younger lawyers are finding greater dissatisfaction with the practice of law than older attorneys; and attorneys in public sector professions (not billing by the hour) were more satisfied than attorneys in private practice.
In a study of associate attorneys in Texas who were practicing in firms of ten lawyers or more, a 1999 study found that 66% of those surveyed believed billable hour pressure had taken a toll on their personal lives. And 51% of respondents to that survey agreed with the statement that they “feel stressed and fatigued most of the time.”
You may ask, “If the hourly billing model is so bad, why do the majority of firms continue to use it?” Simply put, change is hard. This author recognizes the difficulty in implementing a paradigm shift away from hourly billing. I’ve previously tried such a shift in my own practice and failed to see it through, because both my approach and my clients weren’t prepared for it. Changing the billing paradigm (especially in a litigation practice) requires a professional fortitude and confidence in your knowledge and your personal value that too many attorneys don’t have. It also requires clients who are wise enough to recognize the economic advantage represented in alternatives to the hourly billing model. It is my responsibility to educate those clients on why we do it differently than the lawyer around the corner because, the client’s expectations have been influenced by years of standard industry practice.
How many attorneys approach their clients with a direct explanation of intent, such as: “I will solve your problem for you the best way I know how. And you will pay me what that is worth. If you want uncertainty in what you’re going to pay, please see someone else, but for me, I will do the best I know how, to solve your problem the best way I know how, and the price for me to do that is $_____.”?
Most clients are going to recognize that in most every professional setting today, whether it be accounting, elective medicine, financial advising, advertising, public relations, etc, that the professional identifies what the cost of their service is, and that’s what the consumer pays. Law obviously hasn’t caught on as fast, but we’re getting there. As judge’s begin to embrace the shift in billing paradigms, and bar associations continue to encourage it, and younger generations of attorneys continue to innovate within their own practices, I am confident future generations of attorneys will look at the history of their profession and wonder how those attorneys ever lived like that, and they will thank those that came before them that had the courage to change it.
I’m committed to the change, are you?
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