Hourly Rates: In Their Darkest Hour

Published June 23, 2015

Objections to hourly rates are accruing as fast as, well, the hourly rates for a client matter.

There are eight key concerns:

• Perceived abuse in terms of overbilling
• Lack of predictability in the overall costs of the matter
• Lack of control over the factors involved in setting the bill
• Discouragement of efficiency
• Discouragement of value-added services
• Disconnect with technological efficiencies
• Inequality in hours spent delivering the same services
• Discouragement of risk and benefit sharing

The hourly rate is also the focal point of other pernicious effects on the business of law:

Client Communication

Lawyers who are intent on piling up billable hours tend to focus on the task at hand without communicating to the client exactly what work they are doing. Such lawyers fail to build up the client’s confidence and trust. Thus, no matter how successful the end result is, the client doesn’t understand what has been accomplished and may even refuse to pay the bill when it comes due.

Firm Governance

Many states require that partners and other lawyers with managerial authority in a law firm take reasonable measures to ensure that all lawyers in the firm conform to the Rules of Professional Conduct. This is a heavy burden that many lawyers fail to attend to because they incline toward focusing only on rainmaking and their own billable hours.

Lawyer Succession

Because law firm compensation is generally based on hourly billing output, senior partners may not want to share information about clients or prospects with a next-generation lawyer due to fear that the younger lawyer might “steal” business before the first lawyer is ready to step away from active practice. This creates a problem of client service continuity as older lawyers retire.

Financial Performance

Lawyers often think that financial success means ever-rising billable hours. The truth is that a lawyer’s inventory is not billable (or billed) hours—instead, it is the cash, or collected billables, that those hours represent.

Categorized in: Client Relations, Financial and Cash Flow Management, Management

Audience type: Administrators, Associates, Large Law Firms, Small Law Firms, Sole Practitioners