Tuesday, February 15, 2011

A Cogent Argument Against the Billable Hour

Jay Shepherd, an employment lawyer in Boston, writes a very good blog (The Client Revolution, here) that focuses on the attorney/client relationship.

In Shepherd's words, his blog is "dedicated to helping clients get value from their law firms."

In a recent post (here), Shepherd forcefully argues that there are only two types of law firm fees: time-based pricing and solution-based pricing. 

Shepherd says that the endless articles and seminars about "alternative fee arrangements" needlessly blur the fundamental reality that attorneys can really only charge (1) by the hour or (2) by the "solution":
Time-based pricing is what nearly every law firm does, where the price of the legal services depends on the time spent doing the work and the rate of the "timekeeper."

(In truth, I'm being generous here, because it's not really "pricing" at all. Pricing is when you tell the client what something will cost them before they buy it; time-based law firms don't do that at all.)

Under the time-based-pricing model, invented in 1919, every activity is worth the same amount on a minute-by-minute (or really, six-minute-by-six-minute) basis, regardless of how important the task is. With few exceptions, every client is charged the same per hour, regardless of their differing needs. The only measurement of value is the amount of sand that has dropped in the hourglass.

Solution-based pricing is when a law firm sets a price based on the value of the solution to the client. It's that simple. I'm not saying it's easy, because it's not. It takes a lot of thought and preparation and understanding and empathy and experience to figure out how much this particular client values this particular solution at this particular moment. But that's OK because we're professional knowledge workers, not pieceworkers in a pin factory.
Shepherd's post is one of the best summaries I've come across of why lawyers -- and more importantly, their clients -- would be well-served by an accelerated transition to "solution-based pricing."