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Solo In Chicago

...empowering the Second City's entrepreneurial legal community

Saturday, April 08, 2006

Another problem with hourly billing...

I'm posting a blurb from the What about clients blog? below (first time I visited) regarding a problem with hourly billing:

B. Hourly billing creates an inherent conflict of interest between attorney and client. The client wants outstanding legal services at the lowest price possible, i.e., in the least amount of time. However, a lawyer billing by the hour has no incentive to be efficient, and in fact has the incentive to be inefficient, i.e., take up as much time as possible. I think that might be one of the reasons for the “scorched earth” letters that often come from counsel, looking at every possible nuance of a given question.

I agree with the gist of the above. I want to be more innovative in my billing. The one rather simple change we recently made was to often put a cap on our fees up front, particularly on rather basic matters that we do a lot and have a good feel for the time they might take. At this point matters like modifying child support or child visitation, we've tried to cap fees at $1500 to $2000. I think clients like it and if our hourly billing is lower we give them whatever it came to.


At 10:06 AM, Blogger RJON@HowToMakeItRain.com said...

Mr. Olson,

I found your blog from a comment you made following one of my own on MyShingle (The Solo Majority) concerning the fact that solos are in fact the majority of lawyers out there.

It seems we are in agreement again, that hourly billing puts clients and lawyer at odds with oneanother. When I was a solo I favored flat fees or performance-based compensation for all my work, and my clients loved it! Later, as a Practice Management Advisor with the Florida Bar's Law Office Management Assistance Service I helped literally thousands of lawyers with every practice marketing & management issue imaginable (and then some.) Invariably, the ones who implemented my system for converting to a flat-fee/performance-based system of compensation earned more money and reported less stress along the way than those who stuck with the relatively-recent phenomenon of billing for legal services by the hour.

I actually wrote a paper about the history of billing for legal services, which I will be happy to update & share with anyone who is interested, though I can sum it up right here with the following abstract from the article: For hundreds of years lawyers have been charging clients based on results and/or on a flat fee basis; it wasn't until the 1960's when insurance companies decided to take control of their relationships with legal counsel that lawyers started billing by the hour. Of course, now insurance companies have switched their preference back to flat fees, but the damage is done. It's now up to each lawyer to take-back control of his/her practice and return to a more natural billing arrangement with clients.

Anyone who is interested should just send me an e-mail. Mr. Olson, if you think your readers would be interested, I'll be happy to give you permission to publish excerpts, or the whole thing if you want but it may be long for a blog - your choice.


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