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Few services outside of law or accounting charge for time when the professional is not actively engaged in the actual work necessary to complete the job. Most routine activities that are part of doing business are not part of fees. Over the years businesses and individuals have both become more sensitive to attorney billing. Legal audit firms have sprung up as a result of these concerns, and almost all lawyers in private practice have become increasingly sensitized to providing clients with detailed billing.

When associate salaries spiked a few years ago in response to the dotcom boom, billable hour expectations increased commensurately. At the same time, graduating law students were lured to law firms under the public relations umbrella of ‘quality of life.’ Rising salaries, increased billable hour requirements, and quality of life was a formula that simply didn’t add up. The result—both sides failed to meet expectations and everyone paid the price.

A practice based upon billable hours is one that insures an income cap. No one can bill twenty-four hours a day. Few clients want to be the last two hours billed on a fourteen- hour day. In spite of how some people behave, human capacity for work is, in fact, limited.

It is time for lawyers to think of new approaches to billing for services that will benefit both themselves and their clients.

Retainers

Some clients will want your services on an ongoing basis. One approach is to charge these clients a monthly retainer. Begin by studying the way your client has utilized your services in the past. This will help you determine a fee arrangement based upon your estimate of usage and a reasonable profit margin. Monthly fees could be based upon an offering of day-to-day advice for a flat rate. Some months the client might underutilize the service, and other months they might oversubscribe. In either case, you should be assured of a steady income stream, paid up front, that a client would pay. For your own purposes, keep track of hours worked for this client, even if it is no longer necessary to track every phone call, e-mail, or messenger service.

If you are aware of issues that are forthcoming for this client, you may want to talk about areas that you assume that you will be working on for the duration of this fee agreement in your written services agreement.

Set a time period for this arrangement; somewhere between six months and a year. At the end of the period, determine if the arrangement has been mutually beneficial by assessing the usage and income.

Proposals and the RFP

Many government or not for profit entities require an RFP for any service provider. More companies shopping for legal services are requiring law firms to complete an RFP to bid for available legal work. Some very large firms have staff members whose sole responsibility is responding to RFPs. But in reality, the RFP is like most other open bidding processes—not as open as it may look. Before committing a significant amount of time and resources to an RFP process, be aware of the buyer’s previous relationships with law firms. Identify who the economic buyer really is and understand the cost-benefit of putting time into this process.

Project Billing

One of the most attractive ways to bill clients is on a project basis. Although this technique may not work for complex cases and some litigation, a project fee for a set piece of work can be advantageous. A client hiring an attorney to write a contract, a non-compete agreement, or even an uncontested divorce is interested in hiring the attorney’s expertise. The current billable hour system rewards inefficiency and a long drawn out project. What the client is actually paying for is the attorney’s background, experience, and special knowledge that comes from years of creating similar kinds of documents or participating in cases of a similar nature. There is no reason that an attorney should not be able to charge a premium for this service. Clients are often much happier knowing the fees up front and not receiving a bill for routine calls or questions about the project.

The other advantage is that this process removes the often despised task of time keeping from the lawyer involved in the project. This is not to say that the attorney shouldn’t have some knowledge about the time invested to determine profitability, but rather that it need not be recorded in six-minute increments.

One objection to project billing is that no attorney can be certain at the start of a project what amount of time the project will take, or what underlying issues may exist. But many consultants in a wide variety of fields write proposals and complete the work profitably. It is possible to write into the contract a contingency for cases that linger on beyond reasonable expectations such as changing the fee structure for a project that becomes litigation. Project billing carries some risks for the lawyer considering its usage, but many benefits as well.

Value Billing, Success-based fees and Fee incentives

Additional ways to price legal fees include value billing and success-based fees. It always makes sense to talk about fees in terms of value. What separates you from your competitor is not simply that you will each do quality legal work, but that you provide a unique understanding of the value this service provides your client. Hourly billing can be the antithesis of value-based services. What is it worth to your client to avoid expensive litigation? What is it worth to your client to operate a business free from worry about meeting legal deadlines and having compliance issues handled in a timely and accurate manner? By providing a value added service you become a trusted advisor focused on your client’s business success, rather than a service provider sending monthly invoices. It is hard to quantify the value of prevention. But any client who has been through costly litigation should have an understanding of the value that a strong partnership with a legal advisor can bring.

During a recent conversation with a friend, I learned that that during his 40-year career as a business owner, an attorney had never contacted him about changes in the law that might impact his business. He further indicated that any lawyer who had taken the time to audit his business policies and give him notice of how he might benefit from certain pre-emptive policy or procedural changes would have been his business attorney for the rest of his career. This is a client looking for a long-term value-added business relationship who would have been happy to pay for it.

Every year the American Lawyer publishes a survey of the lawyers who make the most money in a single year. Inevitably, these are lawyers who charge, not on an hourly basis, but on a contingency basis. This could be regarded as a success fee, and is usually reserved for plaintiff’s lawsuits. However, there is no need that this kind of results-oriented fee be reserved for plaintiffs. Attorneys may build in fees for outcomes that exceed client expectations, and create success-based fees and other incentives that demonstrate the lawyer’s desire to partner with the client for a successful result. Certainly there are ethical considerations involved, and ways in which lawyers may be prohibited from sharing the financial success of a client, but alternative arrangements that build on the contributing value of the attorney should be investigated.

Lawyers are highly trained professionals who have special skills and expertise. Basing income solely on a minute-by-minute accounting of your day is tantamount to being an hourly employee, albeit one with a significant hourly rate. Trying to have a family and community life while working by the hour has become increasingly difficult. Rethinking billing practices and offering clients an alternative arrangement could bring more life to your practice, and more life to your life.

If you are interested in reading a good book for consultants that addresses the issues of hourly billing, check out “Getting Started in Consulting”, by Alan Weiss. He addresses how to market services based upon value based billing, and how to demonstrate to your client that it is to their advantage. You may be surprised to learn they agree with you.

Wendy L. Werner is the owner and principal of Werner Associates, a legal consulting and career coaching organization. She can be reached at www.wendywerner.com/associates.