billable hour

From 996 to 1075 and a cap on billable hours – what’s going on?

If you missed it, last week TikTok owner Byte-dance announced that it was moving its employees away from their 996 work week to a new 1075 work week.

For the uninformed, which included me until last week, 9-9-6 required Byte-dance employees to work from 9am to 9pm 6 days a week. A time schedule that would make most lawyers blush. Fortunately for Byte-dance employees, their new – light-on – work schedule is 10-7-5, or from 10am to 7pm 5 days a week.

Clearly a step in the right direction when it comes to employee well-being and mental health.

Anyhow, I comment on this for three reasons:

First, Legal Cheek recently published a post that revealed the average working hours of junior lawyers in the UK. Of the 2,500 junior lawyers surveyed, junior lawyers at Kirkland & Ellis racked up the longest average working day, clocking on at a tardy 9:14am and off at 11:28pm. The survey is silent on whether this is a 5, 6 or 7 day week. I recommend you take a look at the full list, makes for rather sad reading (if junior lawyer mental health really is an issue of concern for the industry)
Second, last week the New York State Bar Association Task Force on Attorney Well-being suggested that there be a cap on billable hours at 1,800 hours per year.

The announcement had no less than Roy Strom comment on Bloomberg Law that:

Firms are too scared to impose a cap because it would be hard to hire the number of additional lawyers the cap would require. It would also put a huge dent in profits.

And

The billable hour serves as something of a measuring cup ambitious people pour themselves into. The unfortunate truth about Big Law is that it doesn’t have many alternative definitions of success.

If Roy’s comment is right, and it is an unfortunate truth that Big law has little alternative but to measure success by the amount of hours billed then, in my view, that is a really sad reflection of our industry. Because surely other metrics, such as the quality of the work provided and client satisfaction should have equal weighting. Not to mention churn and retention rates.

My third and last reason for commenting on all this is a personal one. I have long said that asking lawyers to work 2,000+ billable hours a year wasn’t a good thing – and there must be a reason why that is my most read post, so there is some comfort in seeing such an esteemed group as the New York Bar Association finally agree with me.

Have a great week all.

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Photo credit to Nathan Dumlao on Unsplash

10 takeouts from BigHand’s Legal Pricing & Budgeting Report

I’m a cynic, so usually read industry reports published by industry providers with a huge pinch of salt, but every now and then you get an exception to the rule. So is the case with BigHand’s recently published ‘The Legal Pricing & Budgeting Report’, which is full of really insightful information (so read it!).

Here are my 10 take-outs (NA = North America and UK = UK):-

From

The damning:

To the surprising:

To some obvious:

And some knowns:

With a few, “What the?” (as in, only…)

With a great conclusion:

10.

As I said, as a rule I don’t recommended reading these types of reports as they typically are a waste of time; but this is one I have no problem saying “go read it!” – and if you have any thoughts/comments, post them in the comments section below!

Have a great week all.

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Charging like a wounded bull: 10 things to consider

I came across the phrase “The Marquis de Sade approach to billing clients: ‘Bill them till they scream’” in Ori Wiener’s ‘High Impact Fee Negotiation and Management for Professionals: How to Get, Set, and Keep the Fees You’re Worth’ (a book a highly recommend). It made me laugh, and got me to thinking:

‘What would be some of the things I would want to be looking out for in a law firm’s invoice?

So here’s a quick list of my 10 things, but feel free to add your own 🤪 :-

Being charged [for]:

Expenses/disbursement – especially if they are unaccounted for (and particularly on fixed fee matters)
Travel time – especially if your lawyer is in the same town/city as you
‘Reading in’ time – especially when a new lawyer joins the team because one of the original team members has resigned or left the team
Team meetings to discuss your case/matter
Multiple lawyers attending the same meeting – especially if they have different time eateries
‘Out of scope’ work without a corresponding change order
Block billing of numerous tasks without explanation
Promotions – charge-out rates being increased for lawyers on your case because they have gain an additional year of post-qualified experience without adding any additional value
‘Bill padding’/‘Rounding up’ – when your lawyer rounds their time up to the next billable unit
‘Stickiness’ – where senior lawyers are doing work on your file that could be easily have been done by more junior lawyers, but they do it because they need to meet their internal billable targets.have different time.

As I say, feel free to add some of your own in the comments.

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Altman Weil Survey: 98.7% of hourly rate fees are discounted

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One of the most surprising take-outs from this year’s Altman Weil ‘Law Firms in Transition 2020‘ report is how little full freight fee collection is happening.

Keeping in mind that the collectable information in the report would have occurred pre-COVID, it is absolutely amazing to me that 98.7% of all hourly rates fees are now at “discounted hourly rates“.

Pricing Discounts copy

To be fair, the term “discounted rates” is not defined and most law firms would argue – in this day and age – that they rarely get full freight rack-rate.

But it does make me wonder, if only 1.3% of your firm’s hourly rate legal fees are not discounted…

…why bother?

If becoming more progressive about how your firm prices is of interest to you then right now is the time to start thinking about this; because if all you are getting is 1.3% of your hourly rate fully realised…

…it’s time to start thinking outside the hourly rate pricing box!

As always, the above just represent my own thoughts and always interested to hear the views of others.

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Photo credit to Damir Spanic on Unsplash

‘Annuity Revenue’ – who wouldn’t crave some financial certainty in current circumstances?

Annuity revenue – a predictable revenue stream from new or existing customers who buy products and services associated with new or previously purchased products.

As the Managing Partner of a law firm today, what would you say if I walked into your office and told you that I could:

provide you with a guaranteed monthly revenue income,
with a product that creates loyal customers, and
where those customers become – at no additional cost to you – brand champions and refer your services to their network, free of charge, via the Holy Grail of marketing – positive ‘word of mouth’ referrals.

Sounds great doesn’t it. Almost too good to be true.

Well all I can say is that if you were anything like one of the Managing Partners servicing customers who responded to the Pitcher Partners recent ‘Legal Survey 2020 Report‘, that’s exactly what you would be saying: “thanks, but no thanks we are happy with the billable hour”.

Pitcher Partners - Billing Methods

The fact that the billable hour remains the ‘go to’ method of billing (not the same as pricing) for Australian law firms and their customers does not, in and of itself, surprise me. I must admit, however, to being a little surprised with the 1% increase in this billing method (up from 58% to 59%) year-on-year.

Given the times (even pre Covid-19), I was also a little surprised to see that both ‘fixed fee’ and ‘value-based’ pricing remain relatively static (although it should be added that from what I could see the report lacks a definition of ‘value-based’, probably purposely so).

To me this represents a massive lack of foresight on the part of law firms and a significant lost opportunity.

In much the same way as software as a service (SaaS) companies have come to realise that one-off payments around shrink wrap contracts were not servicing the long-term financial interests of the company (unless it’s a legacy product that will no longer be supported), the time has come for law firms (and professional services firms more broadly) to realise that if we want to maximise revenue and, potentially, profit we need to rethink how we generate that revenue.

One alternative that the likes of Ron Baker and Mark Stiving have been banging the drum about for some time is ‘subscription based pricing’.

The benefits of adopting a subscription based pricing model

I have posted previously on this blog about the benefits of subscription based pricing (see here), but leaving all that aside for a second; as Amy Gallo wrote way back in October 2014 in the Harvard Business Review (see ‘The Value of Keeping the Right Customers‘) with the acquisition costs of acquiring new customers running being between 5 and 25 times more expensive than servicing existing customers, it makes economic and financial sense to find, and keep, the right customers.

How you price this is probably the most important step along that path.

The weakness of having billable hours as your default billing method is that you are pricing to the transaction. Whereas one of the greatest benefits of the subscription based pricing model – or even a retainer based pricing model if you must at the start- is that you start thinking about pricing the customer or even the portfolio.

In other words, you start to think about the customer and their needs first. And for an industry that always talks about the customer being at the centre of everything we do, doesn’t it makes sense that our pricing structure reflect this claim?

But it also makes sense internally, because it:

is smarter pricing
leads to smarter collaboration
moves you away from seasonal end of financial and calendar year pressures, and
helps remove any discussion around the ‘commodity’ tag.

Not to say, in these COVID-19 times, when you are talking working capital facilities with your bank, it provides you with a guaranteed annuity revenue stream.

Now who would not want that comfort right now?!

These just represent my thoughts though and always interested to hear your views.

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Has the timesheet been thrown a new lease of life with COVID-19?

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Leaving aside for now whether or not you agree with the billable hour; Most law firms, including many of those that work on fixed/flat and other alternative fees, still require their fee earners to fill-out and submit daily timesheets.

For a small, but ever growing, number of us however there was hope – a light at the end of the tunnel so to speak – that the efficiencies that technology was bringing to the profession would eventually reduce the need to complete timesheets. After all, tasks that used to take several hours of [billable] time (e-discovery for example), with the help and use of technology, could now be completed in less than 15 minutes: so why bother with an outdated measure of productivity such as the timesheet?

And then we had COVID-19…

And so what effect do we think COVID-19 may have on timesheets?

Well, as Cal Newport wrote in his excellent blog post of 12 April, ‘Task Inflation and Inbox Capture: On Unexpected Side Effects of Enforced Telework’:

I’ve spent years studying how knowledge work operates. One thing I’ve noticed about this sector is that it tends to treat the assignment of work tasks with great informality. New obligations arise haphazardly, perhaps in the form of a hastily-composed email or impromptu request during a meeting. If you ask a manager to estimate the current load on each of their team members, they’d likely struggle. If you ask the average knowledge worker to enumerate every obligation currently on their own plate, they’d also likely struggle — the things they need to do exist as a loose assemblage of meeting invites and unread emails.

Ouch, but the killer blow comes with Carl’s next comment:

What prevents this system from spiraling out of control is often a series of implicit friction sources centered on physical co-location in an office.

I had not heard of “friction sources” before reading Carl’s post but he is absolutely right:

When you suddenly take a workplace, and with little warning, make it entirely remote: you lose these friction sources.

And what are those ‘friction sources’ exactly?

Well, as Carl writes [quote]:

If I see you in the office acting out the role of someone who is busy, or flustered, or overwhelmed, I’m less likely to put more demands on you.
If I encounter you face-to-face on a regular basis, then the social capital at stake when I later ask you to do something via email is amplified.
Conference room meetings — though rightly vilified when they become incessant — also provide opportunities for highly efficient in-person encounters in which otherwise ambiguous decisions or tasks can be hashed out on the spot.

[/unquote]

Carl writes like someone who has worked in a law firm for decades and his thoughts give food for thought to those of us considering what the future of law might look like post COVID-19 and why the new normal may not look a whole lot different to the old way of doing things.

As always interested in your thoughts/views/feedback.

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ps – If you want to Buy Me A Coffee, you find me hanging out here

‘4,200’ – why it’s a prize not worth winning

Overnight, Australian time, the annual AM Law 100 report for 2019 was published by the American Lawyer.

A fascinating, if not relatively meaningless (with a caveat to follow), look at how the other half live, one insight from this year’s publication worth taking a closer look at is the ever egotistical champion of the industry – the lawyer with the highest number of billable hours.

And this year’s winner comes from the firm of Fox Rothschild (moment of honesty, never heard of them before today) with, wait for it,

While the individual lawyer is not named, nor their rank, let’s put this under the microscope for a second. That’s:

…4,200 (billable hours) in a year / 365 days in a year (2018 wasn’t a leap year) = 11.5 hours of billable time a day (no write offs or, in parlance, ‘time leakage’)…

…every day…

…without a break – for holiday or for sickness…

…billable

…for 365 consecutive days…

…including Christmas Day.

So what does this really mean?

Whenever I’m asked what this really means I always refer people to the excellent Yale school publication – ‘The Truth About the Billable Hour‘.

In that publication a number of different variations are set out, but in order to ‘bill’ 2201 hours, you need to have been “at work” 3058 hours. By their own admission, this doesn’t account for “personal calls at work, training/observing, talking with coworkers, a longer lunch (to exercise or shop perhaps), a family funeral, pro bono work (if not treated as billable hours), serving on a Bar committee, writing an article for the bar journal, or interviewing an applicant.”

– and yet here we are talking about 4,200 billable hours!

So why does this even matter?

‘Why asking someone to work 2,000 billable hours a year will kill their spirit‘ is by a long way the most read post on my blog. And yet here we are talking more than double this amount.

So I have a few questions:

if you are the supervising partner of a lawyer that has billed 4,200 hours a year, do you have a duty of care to ensure that lawyer is mentally okay?
if you are the managing partner of a fee earner that has billed 4,200 hours a year, do you have a fiduciary duty to ensure the mental wellbeing of that lawyer?
and, most importantly, as a client: do you really want someone who is working 11.5 hours a day, every day, without a break, working on your file (because I know my answer this question)?

As always though, interested in your thoughts/views/feedback.

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Has your law firm considered subscription-based pricing?

Like many lawyers who have worked under billable hours or fixed fees, for most of my career I have pondered the question: “How can I make money while I’m asleep?”, or better yet, awake but not working!

Early in my career I thought I had the answer – subscription-based pricing.

At the time I was working with Linklaters on their Blue Flag program (see this article for an overview of what Blue Flag was all about) which essentially provided compliance related information to subscribers who paid a monthly fee. This was then extended to basic loan documentation that was created using automated software (an early version of HotDocs if I am not mistaken).

As I was to find out though, the problem with this business model is that there is always someone willing to undercut you on price, with little attention to the value you were providing.

And so I never really took it much further.

But I remained interested in the dilemma of how I, as a knowledge provider working on hourly or fixed fee arrangements, could make money while I slept (outside of writing a book and get loads of royalties).

A couple of things recently changed my view on this whole issue though.

First, I listened to Episode #217 of Ed Kless and Ron Baker’s the soulofenterprise.com podcast in which they discuss ‘The Automatic Customer: Creating a Subscription Business in Any Industry’ a book by John Warrillow.

Ed and Ron continue this discussion in Episode #221 (Part II).

One of the big take-outs for me from the podcast was the fact that Porsche has introduced subscription pricing (see here for a story on this).

That’s worth repeating – you can subscribe to drive a Porsche!

And get this, Klaus Zellmer, CEO of Porsche North America, says of subscription-based pricing that:

“We engage people with a brand that they usually wouldn’t,”

As a law firm, imagine…

Second, I recently read that ‘Apple will lean more on subscriptions as iPhone sales drop’

That’s right, Apple – as of the date of writing this post – the world’s second biggest business by stock market value is moving towards a subscription-based business.

Which made me think – what’s the biggest doing?

Answer: ever heard of Amazon prime?

So if subscription-based pricing works for these big players, why not your law firm?

As always though, would be interested in your thoughts, views, feedback.

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The pointlessness of the ‘billable hour’ set out in two charts

Overnight, Australia-time, the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute, relying on data from Thomson Reuters Peer Monitor, published the findings of its ‘2018 Report on the State of the Legal Market‘. Reviewing the performance of U.S. law firms in 2017, as well as looking at the trends expected in 2018, this annual report is typically the “first” big report publication of the year and so a trendsetter of where we may be going as an industry over the next 12 months.

As has been the case in other years, the first chart I typically like to see in this annual report is the one setting out ‘Collection Realization against Standard Rates by Law Firm Segment‘ – Chart 9 in this year’s publication – to hopefully give me an indication of how an industry that largely relies on increases in hourly rates each year to boost top-line revenue is fairing.

As you can see, yet again the results here can best be described as ‘disappointing’:

Chart 9

AM Law 100 firms are tracking an ever declining realised recoveries of circa 80 cents in the dollar. All others aren’t doing all that much better at circa 85 cents in the dollar.

Either way, those levels of realisation would have most bank managers in a panic. And the reason they don’t comes down to one small issue: in law firms this collection rate – other than telling you that the market doesn’t see your hourly value as highly as you do – is absolutely meaningless.

What it is, is pie in the sky internal budgetary metrics against market reality cash in the bank.

So we turn to my second “go-to” chart: ‘Collection Realization against Worked (Agreed) Rates‘. This year this is represented in Chart 10:

Chart 10

As the name suggests, what this chart is showing us is “Collected v Worked (Agreed)”. I’m assuming the “agreed” here is upfront, and I’m accepting that the picture is far from perfect, but there is a far better flatline realisation rate here of 90-ish per cent, or 90 cents in the dollar.

So, what’s my take-out from the two charts?

If you want to try and get a better handle on your projected cashflow, no doubt better to have an upfront conversation with your client about how much you are going to be charging them – however that is (fixed fee, hourly rates, etc) – than having an arbitrary, and less and less meaningful, ‘billable hourly rate’.

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Why asking someone to work 2,000 billable hours a year will kill their spirit

According to a post by Casey Sullivan of Bloomberg, earlier this week US law firm Crowell & Moring announced that it would increase its billable hour requirement for associates, from 1,900 hours per year to 2,000 per year. This new target will take effect 1 September 2016, but on the plus side 50 pro bono hours will count as billable.

15 Years ago I would have cried out “all kudos to you”. Back then my yearly billable target for an English ‘Magic Circle’ firm was 1,400 hours and I flogged my guts out to achieve that. So if you can effectively put 50% of billables on top of what I was doing (and trust me when I say I wasn’t going home at least one day a week), then you’re a better person than I (or so I would have said then).

But if you really need validation of what asking someone to work 2,000 billable hours a year means, then I would like to recommend you read “The Truth about the Billable Hour” by no less an institution than Yale University. In that publication, Yale caution aspiring lawyers that if you are being asked to “bill” 2201 hour, you need to be “at work” (includes travel time and lunch, etc.) 3058.

Taking that further, from an Australian law perspective, if you are being asked to bill 2,000 hours a year then you need to bill 8.3 hours a day (assuming a 48 week year and you never get sick; which, if you are being asked to do this, you most likely will be). That means you are very likely going to need to be “in the office” around 12 hours a day – and that assumes no write-off by your partner or leakage.

But here’s the question: “What difference does this make?”

I ask this because I wholly agree with the following comment my friend Kirsten Hodgson made when I posted a link to this article on LinkedIn:

“why would you reward the number of hours someone spends working? Surely it would be better to focus on how to deliver value smarter and more quickly. This doesn’t incentivize innovation or any type of process improvement.”

Exactly right, you’re measuring all the wrong things!

Leaving aside the Balance Scorecard argument, asking someone to do 2,000 billable hours a year doesn’t take into account:

client satisfaction
realisation (it’s a utilisation metric)
working smarter
innovation

or many other metrics.

And for those who may point out the benefits of this including 50 hours pro bono I say this: the Australian Pro Bono Centre National Pro Bono ‘Aspirational Target’ (ie, where we would like to get to), is 35 hours per lawyer per year.

But probably more importantly than all of this is this:

– if you ask someone to do this, then you really leave them very little time to do anything else.

This really should be a concern, on the business front because you leave almost no time whatsoever to train them in the business of law – ie, you kill any entrepreneurial spirit they may have. And, crucially, the only metric that really counts to them is that all important 2,000 billable hours (keep in mind that like I was, they’re very young). Which for a profession that has the mental health issues we do, is not good.

For all of these reasons, I’m hoping no other law firm follows this. But sadly I think they will.

Oh, and if you are a law firm client reading this post you might just want to look up whether your local jurisdiction has a “Lemon Law” rule that applies to provision of a service.

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