Demonstrate how you provide value

Regular readers of this column know that I'm a firm advocate of value billing -- demonstrating to clients the worth as well as the cost of the legal services they receive, and billing them accordingly.

Value billing moves lawyers away from the mode of operating the same way that hourly laborers do. Firms that bill on the basis of value can increase their profit (and lawyer compensation) when they become more efficient.

Lawyers don't really sell time, but rather a service. Our goal should be providing a service that means solutions to our clients.

While I endorse the concept of value billing, I will agree that any lawyer is safer, despite whatever billing methodology is employed, when keeping track of time expended.

Where your billings may come into question, either by a judge needing to approve the fee, or because of a fee dispute needing to go before an arbitration panel, the tried and true method of demonstrating what you've done usually comes back to hourly metrics.

One might ask, if a client agrees to value billing, why should it matter whether we keep track of time? The most important reason is the ethical requirement, under the ABA Rules of Professional Conduct and most state bar regulations, that fees charged must be "reasonable." If a client wants to dispute whether a value charge for a service was reasonable, a time record can provide useful backup documentation.

One way to enhance the client's knowledge of value is to prepare a budget of events, time and costs for each matter of significance, and get the client to accept it. You can bill for value provided based on passage of time (e.g., monthly), passage of benchmarks noted in the budget or other appropriate method. But the bill is still for value as measured by specific benchmarks.

Value is determined (in my opinion) 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 in a transactional matter or in litigation.

I once contemplated outsourcing a task that was facing me. I was given a quote; it seemed a bit odd, so I inquired about the methodology for reaching the fee. The response was that the dart hit that number. Such clients are not ideal candidates for value billing!

This, of course, brings us back to the need for communication and trust and rapport between client and lawyer.

Value billing ultimately is best applied to legal services that are perceived to be unique because of the attorney-client relationship or because of the special skill required to deal with the challenge.

The key is to understand the value to the client, expressed either in units (money) or some other format clear to the client.