Report: Billable hour remains the pricing method of choice for Australian law firms

[This post first appeared on my LinkedIn page on Tuesday 14 November 2017]

Despite the rhetoric we read each and every day around NewLaw, law firm innovation, value-based pricing, fixed fees and alternative fee arrangements, Macquarie Bank’s recently published ‘2017 Legal Benchmarking Results – An industry in transition’ report confirms that the crusty old ‘billable hour’ remains the pricing method of choice for the majority of Australian law firms.

While the report evidences a ‘gradual transition’ away from the billable hour – with 33% of law firms stating that they planned to use a method other than billable hours as their primary pricing method going forward, the term ‘gradual’ here would probably be better described as ‘glacial’ – as this figure is up a mere 2% since 2013.

fees

Interestingly, the report breaks down the preferred pricing method of choice by State (see image above), with Victoria and Queensland leading the way on ‘value-based billing’ (15% and 14% respectively) and NSW smashing it on ‘fixed fees’ (at 26% – which looks to be mostly property related matters) [Anyone else out there as surprised as me with the QLD result?].

Disappointedly, ‘value-based pricing’ is not the term used in the report (and thus I have to assume not asked) as ‘billing’ implies an after the fact approach which almost certainly means there has been no upfront discussion around needs, process maps, project management, white-boarding or any of the other methods of communicating a mutual understand of ‘value’ before a task is undertaken.

At the end of the day though, this report seems to show/indicate that roughly 2 out of every 3 matters undertaken in Australian law firms is being done ‘on the clock’ (i.e. billable hour). And while it doesn’t show what the realisation rates are around this method of pricing, it does provide evidence that law remains a highly profitable business – thus, by extension this method of pricing.

Overall though I found reading the results in this report depressing.

Why?

Because I actually enjoy reading all that rhetoric every morning about how law is changing and becoming more innovative – and to be confronted with evidence this may not actually be the case is, well, depressing.

rws_01

[ps, if you haven’t downloaded and read the report – do!]

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