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Winning Alternatives to the Billable Hour: Strategies That Work

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Why do so many lawyers simply bill by the hour?

In the increasingly competitive legal market, lawyers are searching for ways to bring their clients more value. This book encourages lawyers to break out of the hourly billing rut and try a variety of value-based billing strategies.

The book discusses how clients perceive the "value" of legal services. It also suggests how lawyers can assess such value--and bill accordingly. The book sets forth fifteen alternate billing structures and, most important, highlights the pros and cons of each.

As a coach and consultant to lawyers, I particularly liked the chapter on client communication through billing. This is critical: every client communication (including a legal bill) should be treated as a rainmaking tool. Legal bills need to describe the services rendered in a way that lets the client understand and appreciate the full value received.

Lawyers will enjoy the detailed appendix and attached CD full of sample fee agreements and other client correspondence.

The laudable purpose of this book is to encourage lawyers to change from hourly based billing to an alternative billing system that is beneficial both to the lawyer and the client. The book explains how to implement different billing methods and argues that lawyers can gain a strategic advantage over others by using a more flexible approach to billing.

The authors do an excellent job of presenting and explaining the pros and cons of various billing alternatives, including:

Fixed or flat fees;
Contingent fee;
Hourly fee;
Blended Hourly Rate;
Fixed or Flat Fee Plus Hourly Rate;
Hourly Rate Plus A Contingency;
Percentage Fee;
Task-Based Fee;
Retrospective Fee Based Upon Value;
Unit Fee;
Relative-Value Method;
Lodestar Method;
Statutory or Other Scheduled Fee System;
Availability-Only Retainer; and
Retainer as a Deposit Against Future Services.

The book is written for lawyers in all firm sizes. I'm pleased that solos and small-firm lawyers are given special treatment with a chapter written specifically for them and a highlight in the Introduction suggesting which chapters would be most beneficial to this group of lawyers. I am also pleasantly surprised by how many alternative-billing practices I've used over the years.

The book explains that for billing on anything other than an hourly basis, the first thing that must be done is to know the cost of producing legal services. Cost is only one factor. The authors suggest that price is also defined "as the amount of money that a well-informed client (the purchaser) is willing to pay for the value of the services of the lawyer (the seller)."

In order to better determine price, a "value curve" is examined which depicts clients' views of the value of various legal services. The "value curve" is divided into four segments:

Unique: Work that is absolutely critical to the client. This work represents less than 4% of the available legal market.

Experimental: These are high-impact or high-risk matters for the client. For this work, the client must have personal confidence in the lawyer. Approximately 16% of the work in a given market is experimental.

Brand Name: This is routine but important work for a client. This work will go to lawyers who have established a brand name and reputation for handling these types of cases. This makes up around 20% of the work available.

Commodity: This is work that clients believe any reasonably competent attorney can handle. This is the routine stuff and makes up about 60% of the market. This work tends to be quite price-sensitive.

The authors believe that in order for alternative billing to be successful, lawyers must understand the "value curve", review each potential case to determine where it falls on the value curve, analyze their practice and decide which areas where innovative billing might be appropriate, determine which clients might be receptive to alternative billing methods, examine closed files to come up with what fee might be appropriate from a cost accounting perspective and effectively communicate the billing process to the client by emphasizing that the client is a lawyer's most precious resource.

If all this sounds like a lot of work just to charge clients something other than the typical hourly rate or contingency fee - that's because it is. Unfortunately, that is also why the hourly rate is the norm - doing anything else requires a close analysis of your legal practice and a great deal of thought about fees in each and every case.

In essence, the authors argue that in order to seriously implement innovative billing, a lawyer or law firm must perform a detailed self-assessment, must look closely at objectives and goals, should examine present and future market trends, review present billing methods and have a willingness to try innovative billing. For many lawyers, the effort required for this appears overwhelming. It is much simpler to just quote an hourly rate and move on to the next issue.

Until clients demand a change in the way that lawyers bill for services, the hourly rate will reign king for a very long time.

Winning Alternatives to the Billable Hour: Strategies that Work (3rd Edition), by Mark Robertson and James Calloway, is one of those books that delivers above and beyond the call of duty. This is the third edition to an already great book. Mark Robertson is a practicing lawyer in Oklahoma City and former chair of the ABA's Law Practice Management Section. Jim Calloway is an attorney who is the director of the Oklahoma Bar Association Management Assistance Program. Both combined their unique backgrounds and talents to write an outstanding book packed full of information about why the billable hour is not necessarily the best billable method.

In these days of economic madness, lawyers are finding that while their time is valuable, it's their knowledge that is more valuable and clients need to know that they are getting the best bang for the buck. Not all clients like to be billed by the hour, especially when they can find other lawyers who can do the same work but at a more reasonable rate.

Mark and Jim combined their years of knowledge to produce a book that gives the reader an understanding of the various billing methods and how to adapt different methods for different types of cases. They provide a roadmap for how to transition away from the billable hour. Technology has changed so many things for all of us, but to the lawyer that continues to bill by the hour, technology has become a double-edged sword.

I highly recommend this book to anyone and everyone that bills for their services, not just attorneys. It will help light the way to not only better billing practices, but also help to build better relationships with your clients.