Billable hours – again

Friday’s New York Times has brought light to a steamy debate in the legal community: Is billing clients by the hour the most effective and profitable way for a lawyer to collect his or her fees? In these recessionary times, this norm has become more unpopular. Clients are asking more questions and wondering if law firms are prolonging their problems instead of resolving them.

According to the American Bar Association’s Model Rule of Professional Conduct 1.5,  “a lawyer shall not make an agreement for, charge, or collect an unreasonable fee.” Reasonableness is further defined by several criteria. Ultimately, though, what lawyers charge must be commensurate with the value their clients receive.

Value is determined by the client, not the attorney. But, it’s the attorney who must educate the client about ‘value.’ It’s otherwise hard to use the value or alternative billing approach with clients who are not sophisticated in their own business matters and find it difficult to appreciate how value is measured and whether the fee for value provided is reasonable.

Demonstrating value enables lawyers to make a convincing case about the reasonableness of their fees. Once benchmarks are established, they can bill in a regular and timely way, using statements that contain a full narrative of the work done and the goal accomplished by that work. This allows attorneys to provide status updates (contact me at edpoll@lawbiz.com if you want a form status report) easily and to reinforce that every action they took on behalf of the client had a purpose. Also, because legal services are often intangible, the more information provided about how much work was done and what it accomplished, the more likely the client will be to perceive the bill as fair and to pay it promptly. And, oh, by the way, the $1,000 per hour lawyer makes great press. But, this is not the norm. The real world is on the ground, not in the air. More than 50%of all lawyers earn less than $100,000 per year … that is not $1,000 per hour!

Make sure clients understand that they’re entering a two-way relationship. The lawyer agrees to perform to the best of his or her ability in accord with professional standards, and the client agrees to communicate and cooperate fully – which includes paying the bill timely. That’s a real definition of what’s reasonable.

Categorized in: Management, Marketing