Moving Past the Billable Hour - How do you do it?

The most recent issue of the ABA Journal once again addresses the issue of flat fees with an article by David Gialanella, who sets forth five steps for firms to follow if they want to move from hourly billing to value pricing.

He also mentions the essential shift in thinking that must occur in order to change from a system based on billing by the hour to one based on value pricing. The article is based in part on Jay Shepherd of the Shepherd Law Group and the steps his firm has taken in doing away with hourly billing.

Gialanella says firms must:

Do some homework
If you've been practicing for some time, reviewing past bills as Shepherd's firm did, looking at the variables that arose and what made one case more difficult, complicated or expensive than another is a valuable educational experience. Not only will it help you to determine how you should price your services, but it will also help you to prepare clients for possible twists and turns that may occur. If you're new to the practice, you'll have to do even more research to find out the possibilities and the price for similar legal services. You'll need to know what these services entail, what clients expect and how you can differentiate yourself.

Making the shift may be difficult at the outset, and will require some hard work before you get the pricing structure working the way you want it to. It's a process that will need constant tweaking as your services, the market and your clients change.

Find a new way to measure performance
Rewarding (or punishing) staff and associates based on hours alone was never a good idea, but it certainly won't work in a value pricing environment. Measuring things like accomplishing stated goals, providing innovative solutions and creating happy clients are much more appropriate standards for performance. (For more on this topic, see my post, "Are Timesheets Really an Effective Management Tool?")

Be firm (stick to your guns)
If the work is priced right, you may get some 'push back' from clients, particularly if you're pricing an entire engagement up front, rather than billing by the hour, because you'll be quoting a big number that the client needs to swallow all at once. This is why billing in stages or dividing up the fee into smaller, more manageable pieces can often make things more palatable to clients.

Get to know the business end of the practice
Contrary to popular belief, you CAN be a professional AND think like a business person. In fact, if you want to be successful in today's market, you MUST be informed about the business end of your practice.

Stop tracking time
While there may be some circumstances under which this is impossible due to statutes, court rules, etc., keeping track of time interferes with the necessary shift away from thinking that you're selling time and toward the realization that you're selling a service that has value apart from the length of time it takes to complete a task or engagement. (See my post, "Do You Need Timesheets to Determine Profitability?")

Want more information on value pricing and other billing issues? Take a look at the posts in my Legal Fees and Billing category. Or, if you want help re-working your own pricing structure, contact me to see how I can help.