Law Firms Are Slowly Changing Focus to Efficiency Rather Than Billable Hours

Alternative fee arrangements at law firms have grown from about 5% of revenue in 2008-2009 to about 22% this year, according to Above the Law, which reports on the legal profession.

Change is happening, but slowly. Law firm clients are demanding more predictability in fees, and law firms are starting to offer discounts, value-pricing, alternate fee arrangements and off-site service centers. Some are hiring pricing directors.

Above the Law summarized a recent panel discussion at a National Association for Law Placement conference in Chicago on the subject, “Beyond the Billable Hour: The Intersection of Client Value Pricing, Efficiency and Associate Professional Development.” The panel discussed the experiences of Chicago-based Chapman and Cutler LLP.

Managing editor David Lat came up with six key points from the discussion:

  • Being an excellent lawyer is expected. Clients want the work done for less and they know there are plenty of great lawyers available to do it. Don’t count on loyalty.
  • Firms should be selective about the work they want to do and how to get it. Bigger law firm generally try to steer away from so-called “commodity work,” which is less sophisticated and less lucrative.
  • Today’s graduates expect to have many jobs over their career. Law firms need to recognize that they must nurture talent and help people with their careers, but these careers may be with other firms.
  • You can’t cut your way to success. Panelists noted that in today’s “flat revenue environment,” some law firms are trying to manage it by cutting expenses, but firms should be focusing on providing the best possible service to clients because so much work comes from referrals.
  • Use the data. Law firms must stop focusing on the profits for the partners and the rate hikes needed to get there. Instead, they must be better about knowing the costs of certain tasks and improving processes. “Firms that are proactive rather than reactive in terms of analyzing their data and proposing customized fee arrangements will enjoy greater success than firms that are reactive and stick to the billable hour,” Above the Law reported.
  • Consider different approaches to professional development. Chapman and Cutler has begun focusing on efficiency rather than the billable hour. “The firm no longer wants to incentivize high billable hours that don’t produce value for the client,” Above the Law reported. At the same time, those who work fewer hours but provide value to the client should be acknowledged and compensated.