The billable hour has been a mainstay of the legal industry for decades as the preferred method for law firms to bill their clients. It’s also had additional uses in measuring staff productivity as well as profitability from a fee-earner, departmental and practice level. However, with the rise in some alternative fee structures in what is now a much changed and varied market, is time up on the billable hour?
The main driver behind this shift towards alternate fee structures such as fixed fees are the clients themselves, and it comes primarily from a need for greater transparency and predictability with their legal costs. In short, clients want to know what they are paying up front, and what work that entails, rather than the all-too-commonplace issue of surprise bills at the end of a matter. This then allows them to budget accordingly themselves which becomes ever more important in a time of economic uncertainty.
Fixed fees and contingency fees have been prevalent in the UK legal market for some time, and with the Law Society’s mandate for transparency on pricing in a number of areas, primarily for areas concerning private individuals, they are likely to increase in popularity and use into other areas in the not-too-distant future. Contingency fees have been commonplace for decades themselves, particularly in the ‘No Win No Fee’ space.
Fixed fees also offer law firms some advantages. They allow firms to streamline their billing processes and focus on delivering quality legal services, rather than tracking time.
Value-based pricing is another alternative fee structure that is gaining traction. This fee structure is based on the value that a client derives from a legal service, rather than the time that it takes to provide the service. This approach aligns the interests of the law firm and the client, as the law firm is incentivised to deliver quality outcomes that meet the client's objectives.
There are many, particularly in the more lucrative spaces, who will continue to find the billable hour the most value for money and this comes through transparency and trust in its own way. By building that client relationship, ensuring effective client communication throughout, and avoiding the prospect of surprise bills, there is still a place for billable hours in the market – especially at the corporate level where work is usually on retainer.
Time recording more important than ever, regardless of fee structure
Despite the movement towards alternative fee structures, time recording is still a critical component of legal practice management, in fact potentially more so than before. In order to have the data to accurately set their prices, law firms need to know how much time they are spending on each matter and how much time is spent on certain aspects of a case.
Understanding these aspects allows not only for the right amount to be charged, but also to identify efficiencies to streamline the processes, as well as continue to track productivity and profitability of fee-earners and departments.
For areas where billable hours are kept, transparency is key to ensuring its survival and the survival of your client relationships. As such, a time recording solution that connects to your case management to bill accurately at every stage, alongside a range of time capture tools to make the practice easier will no doubt improve transparency at every level of your cases.
Our time recording software solution, Carpe Diem, provides law firms with the tools they need to track time accurately and efficiently from anywhere, using any device and integrates seamlessly with billing and accounting systems, making it easy to manage legal costs and bill clients.
In short, while the legal industry is moving towards alternative fee structures, but the billable hour may not have ran out of time. In any event, time recording remains a critical component of legal practice management. Law firms need to be transparent about their costs and aware of how much time goes into working on each matter, regardless of the fee structure.