Law Office Technology by Roland Schorr & Tower

Link: http://online.wsj.com/article_email/SB125106954159552335-lMyQjAxMDI5NTIxNDAyNjQ5Wj.html#articleTabs%3Darticle

An article in the Wall Street Journal is causing quite a stir this week. (note: Link may require subscription to read the whole article). The gist of the article is really not an especially new or surprising story. Basically it says that large corporate clients are starting to insist that their outside counsel switch from a billable hour model to the flat fee or "Value-based" billing model.

Value-based billing has been coming for years, in fact the ABA has at least one book on the subject ("Winning Alternatives to the Billable Hour" by Mark Robertson and Jim Calloway). Some firms have embraced it, some have avoided it. Few firms have gone ENTIRELY to the value-based model, instead most have gone with a hybrid system where they've used value-based billing on matters that readily lend themselves to that kind of billing (transactional work, routine estate, wills and trusts, certain kinds of basic cases) while still charging by the hour for more complicated work, especially difficult litigation cases.

This move by large clients isn't really a revolution, rather it's just pushing firms to go further, faster, with their value-based billing efforts. The thing is, if you're GOOD at value-based billing you can be even MORE profitable than you were before it. So how do you do that and what does tech have to do with it?

Two things.

1. Tech can bring efficiencies. Ironically firms have long been wary of technology specifically BECAUSE of the billable hour. If you use document assembly software that cuts your time to compose a particular document down from 3 hours to 1 hour...well, you've just cost yourself TWO billable hours! But in a value-based system, that's a GOOD thing.

Imagine this - you traditionally bill $200 per hour. Before you used to charge $600 to author that document in 3 hours. Now your client insists you go to a value-based system and tells you that they will only pay $400 for the document. If it still took you 3 hours to compose the document then you've taken a hit. But if your technology enables you to compose the document in just 1 hour...now you've effectively doubled your hourly rate! You spent just 1 hour and got paid $400. Do 8 of those in a day and you've made $3200 in fees that day, whereas before 8 billable hours only netted you $1600.

Increasing your efficiency in value-based law increases your profits and your effective "billing rate". It's not just about investing in new technologies however. Don't just consider upgrading your computer or your software...upgrade your USERS. No, I'm not suggesting you fire your staff and hire better staff. I'm suggesting that you invest a little time and money in training. It may well be that your existing computers and software are capable of a lot more efficiency than you're currently getting, but that you or your users don't know all the best tips and tricks for best using that software.

Invest in some training for you and your users and you'll see the payoff in terms of cutting the time it takes to perform certain tasks and/or producing better work product in the same time. Imagine if a few tips could save you 10 more minutes on the aforementioned document. Now it only takes you 50 minutes to compose one. You can now do 6 of them in 5 hours. Now you're effectively billing at $480 per hour. You can generate 8 extra documents per week. That's $3200 a week in additional revenue just by saving an extra 10 minutes per document. If you spend $2000 on training it will have paid for itself in about 4 days.

2. Tech can help you be more effective at pricing. By carefully tracking the time spent on various tasks you can more accurately predict how long that work will take you in the future. One area a firm can get in trouble with value-based billing is in under-estimating the time required to perform the task. If you estimate it will take you 30 minutes, instead of 50, to compose the document we've been talking about and use your existing billing rate to price that document at $100 (half of $200/hour) then you're going to take a hit because the document actually takes you 50 minutes to produce. Now to generate the $1600 a day you were generating before you will have to produce 16 of those documents a day. But that means you'll have to work more than 13-hour days! That's not a good way to go.

Accurate estimates of the work will let you compose accurate, and profitable, pricing structures.

The other thing accurate estimates and tracking of the work enables for you is that it helps you spot one-offs. If you see that one of the documents took an hour and a half instead of the usual 50 minutes you can go back and look at that document to see what happened that it took so much longer. Perhaps you have a quality-control issue. Perhaps more training is needed to reduce that in the future. Perhaps the client actually requested things that were outside of the scope of the original document. Point is, once you've established how long that task SHOULD take, you can more easily spot and learn from any times that the task exceeds those expected ranges.

Good technology, with time tracking and actionable reporting, makes all of that possible.