Hourly is King but Alternatives Add Value

Admin — Tue, 21 Jun 2005 17:49:01 GMT

IOMA, the Institute of Management and Administration, reported that, “Although firms are increasingly using alternative billing options, hourly billing still predominates. The firms queried said that 88% of their gross revenue is derived from hourly billing.”

IOMA’s 2004-2005 annual law firm survey is now available for $249. The results and analysis can be purchased online and is available in soft cover or PDF for immediate download. To purchase, go to www.ioma.com.

The fact that hourly billing accounts for almost 90% of fee revenue is not surprising. Most law firms focus on the client and not on one or a few well-defined packaged services. Most law firms are positioned to be the first responders to their clients, a role similar to the primary physician and their patient. Even when a law firm refers their client to another firm for a specialized need, they tend to stay involved assisting and advising their client. A relationship that may start on a flat fee engagement that turns into a relationship, based on the client’s trust and the attorney’s empathy, invariably reverts to the flexible hourly billing arrangement. That is not to say that alternative billing should not be proposed and used for special situations that arise. In fact, occasional use of alternative billing approaches could be a must in preserving that relationship.

The client, and not the firm, is the key to when an alternative billing arrangement should be proposed. For example, when a major legal matter arises, the client may be concerned about the predictability of legal cost and the firm’s offer to share risk though alternative pricing would be perceived by the client as an added valuable service. That perception is likely to cement the relationship between the client and firm even more firmly; whereas, consistently escalating hourly charges with no end in sight would strain the relationship. There is no one-size-fits-all alternative billing method, but if you have not read the ABA’s publication Winning Alternatives to the Billable Hour, you should, and you should have it on your bookshelf.

Proponents of alternative billing methods tend to lose their arguments by excessive enthusiasm. They want to replace the hourly billing relationship. That isn’t going to happen because of the eclectic nature of the first responder relationship. Nevertheless, there are ample opportunities to both increase the value of the firm’s services in the eyes of the client and to improve firm profitability through selective alternative billing arrangements. The best use of alternative billing is when it is used to improve client satisfaction and, even then, it must be fair to both client and firm.

In the eyes of the client, the best “full service” relationship will include both hourly billing and occasional alternative billing methods. From the firm’s standpoint, alternatives to hourly billing falls short of accommodating their first responder role.

Make More Rain : disaster recovery, alternative billing

Hourly is King but Alternatives Add Value