The Death of The Billable Hour
Jul 30, 2019
Hourly Billing vs Flat Fee Billing
Hourly Billing Pros and Cons
- There’s a direct correlation to the firm’s costs.
- It’s easy to tell if the billers are earning their worth.
- You lose clients -
- They find someone cheaper.
- Open ended price tag - people are risk averse.
- You’re putting the value on your time rather than the service. With flat fee billing you are placing the value on the end result.
- It creates friction between your firm and the client. It’s hard to confront your client for more money. When you prepare the bill, you may take off some of the hours spent on different things because you’re worried about your client questioning it.
- Causes accounts receivable problems. Many firms aren’t good at replenishing their retainers and don’t have a system in place for doing so. You also have to spend time chasing after your clients until they pay you. This also will cause friction with your client.
- Increases risk of malpractice suits. When you don’t win a case for a client, they will nitpick everything you did to try to get their money back. If you sue them for accounts receivable, they may turn around with a counter suit.
- If a biller is poor at documenting time that will cost you money. You’ll end up not being able to bill all those productive hours the biller has worked for the case because they didn’t document it.
Flat Fee Billing Pros and Cons
Flat fee billing is simple. You decide on a price for the service and then you don’t need a retainer. Your clients pay the price and now all you have to do is deliver.
- Client knows cost up front. It makes it easier to close the sale because people like to know what they’re getting into, they don’t want to take risks.
- You can collect the fee at the beginning. You don’t need a trust account, that money doesn’t have to be tied up.
- You can assign work to an employee that wouldn’t be billable. Some tasks don’t need a paralegal or an attorney, they can be done by someone who costs you less money. Now your paralegal can be more efficient and handle more cases.
- Internal processes can be made. With hourly billing you’re not motivated to make things run more smoothly and take less time, but now you can create processes that will reduce time spent on different tasks. This will allow you to increase your revenue without having to raise your prices.
- No collection hassle. You get paid in the beginning, otherwise you don’t do the work. Your clients will be happy because they won’t be getting any unexpected bills. You don’t need to waste time going after your clients to get the money they owe you.
- Reduces risk of malpractice suits. Clients usually make malpractice claims because you kept running after them for more money. Now they pay it up front and don’t have to be bothered with it anymore.
- May be a barrier to the sale. This is the only con I could come up with and even so, it’s not a strong one. The only time it can be a barrier to the sale is if your price is too high.
Where Hourly Billing is Necessary:
- Contingency cases
- Court appearances. Here I can make the same arguments as before. You can assume how long you’ll be at court and tell your client for every court appearance here is the flat fee price.
Stay Tuned For Our Next Post About Structuring Your Flat Fee Billing
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