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Boston Firm Bans Billable Hour

Last August, acclaimed novelist and lawyer Scott Turow called for the death of the billable hour. Turns out, however, that at least one law Boston-based firm, the Shepherd Law Group, beat Turow to the punch and killed the billable hour at the beginning of 2007, according to this ABA news story and this post at Gruntled Employees, the firm's blog (see the post for a list of other bloggers who've written approvingly of Shepherd Law's decision).

As firm leader Jay Shepherd writes, banning the billable hours hasn't cut revenues; instead, it's driven growth. He writes:

In fact, during 2007, Shepherd Law Group has billed exactly 0.0 hours. And in doing so, we've more than doubled our revenue compared to last year. Clients don't really want to hear about our revenue, but if they think we're doing something to make less money, they immediately get suspicious. (Fear not, good clients. We're still capitalists.) Our revenue growth comes from two sources: new clients fed up with the value-insensitive system of hourly billing, and increased efficiency driven by our flat-fee system. Our up-front pricing places our interests squarely aligned with our clients' interests, which makes them happy and forces us to be more efficient.

As I've noted many times, I agree with all of the arguments against the billable hour: how it breeds inefficiency and how it makes the clients' interests adverse to the lawyer, who has incentive to run up the bill. And in fact, in my own practice, I frequently offer flat fees, capped estimates and alternative fee arrangements.

But at the end of the day, it's not about me or lawyers. And too often, the arguments in favor of the billable hour come from the lawyer's perspective -- how we lawyers must define our value or how if we lawyers talk about price, all clients will ask about is price. From where I sit, what matters is what clients think -- and as Shepherd's post suggests, the firm's clients roundly support alternative billing.

So that's why I didn't quite understand value billing guru Ron Baker's post about Shepherd's alternative billing system. Baker writes:

When asked if change across the profession is possible, Shepherd replied: "Can it be done?" "Yes," Shepherd said. "Will it be done? I think other firms will be dragged along kicking and screaming."

How true. But they will be dragged not by customers, but by other law firms who have adopted this more enlightened model and continue to attract customers and talent from the firms unwilling to face the realities of a knowledge economy.

I can't say this enough: pricing changes come from SELLERS, not BUYERS. It's up to law firms, not their customers, to make this change. It simply won't happen any other way.

So here's my question: If value billing benefits clients, then why do we lawyers need to sell them on it? Have clients become so entrenched in the billable-hour concept that they don't realize that there's a better way? Or is value billing another way for firms to charge more for the kind of value that as lawyers we're obligated to provide anyway? 

Posted by Carolyn Elefant on October 9, 2007 at 07:51 PM | Permalink | Comments (5)


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