Value Billing vs Hourly Billing: Which Way is Best For You?

I promised David at EthicalEsq that I would respond to this post of his today. In a response to my previous post on value billing, David argues:

There are a lot of problems with the billable hours system, but most of them are the result of abuses rather than of the inherent nature of using hourly billing. In determining the reasonableness of a fee, therefore, the legal profession has attempted to avoid the worse distortions from hourly billing by not fully charging for hours spent “getting up to speed” in an unfamiliar area of law. The client rightfully expects expertise and needs to be informed by the ethical lawyer when he or she is not yet fully competent in a particular legal subject.

The client also rightfully expects to pay a fee that corresponds — at least roughly — to the amount of time spent by the lawyer. And, the honest fiduciary should let the client know approximately how much work is involved. Some sophisticated clients might want to experiment with or negotiate for some kind of value-related fee. But no sophisticate would say “I know you’ll only spend a few minutes on this, but it’s worth millions to me, so here’s a seven-figure check.” Instead, the savvy client would negotiate for, or shop around for, a more competitive fee, no matter the “value” of the result.

David and I both agree on quite a few things, the primary one being that a lawyer should educate his or her client up front about the basis for the fee and give them an estimate of the range of costs and outcomes. However, I feel (unlike David) that the billable hour system is the problem, for both lawyers and clients. The best indictment of the billable hour that I’ve found on the web is in this article where the author writes:

The billable hour, a practice used only since the early 1960s, has become an artificial device that ill serves both professionals and clients. It divides the time of the accountant and lawyer and consultant into parts, turns each professional into a bookkeeper, and creates such profound guilt for every working hour that’s not billable that important non-billable firm needs are inadequately addressed. It affords the opportunity for the worst kinds of excess, such as padding hours, thereby increasing revenue without supplying value – a short-sighted practice bound to backfire. It makes no distinction between the hour spent on trivial activities and the hour spent on substantive matters. Moreover, if the client perceives that there is no added value in the hourly bill, the general practice is to renegotiate the fee, which is becoming a common practice in today’s competitive environment – and makes a mockery of hourly billing. It’s such an anachronism, and so entrenched, that it precludes such rational billing approaches as value added and enhanced worth or contribution to a client’s business, neither of which is best calculated by the hour. As one sage put it, it’s a virtual cartel in which every firm seems to arrive at the same billing rate, even though quality of service is not consistent from one firm to another. Or even from one partner to another in the same firm.

How many other products are bought this way? My wife and I are going to be building a new home this year. We were given a choice by our contractor to pay a set price or be charged on a “time and materials” basis. We chose the former. I don’t care how much my contractor profits on the job so long as I get a quality home for a price I’m willing to pay. To use another example, should I agree to buy a car at $200.00 per hour multiplied by the time taken to build it? If I get a lazy shift the day my car rolls down the line, should I expect pay more than my neighbor who bought the same car built by a more efficient crew for thousands less?

The Illinois Supreme Court requires lawyers to adhere to the code of ethics. Rules of Professional Conduct, Rule 1.5 (which David quotes in part in his post) states:

Factors to be considered as guides in determining the reasonableness of a fee include the following:

1. The time and labor required, the novelty and difficulty of the questions involved and the skill requisite to perform the legal services properly.
2. The likelihood that the acceptance of the particular employment would preclude other employment by the lawyer.
3. The fee customarily charged in the locality for similar legal services.
4. The amount involved and results obtained.
5. The time limitations imposed by the client or by circumstances.
6. The nature and length of the professional relationship with the client.
7. The experience, reputation and ability of the lawyer or lawyers performing the services.
8. Whether the fee is fixed or contingent.

Only one of the thirteen underlined factors speak to the time spent on the task. I argue that many of the other factors speak to the value received by the client. In the end, I think David and I both agree that a lawyer should charge a fair fee. In value billing, what is “fair” is in the eyes of the client. In hourly billing, what is “fair” is in the eyes of the lawyer. Which is a better way to serve your clients?

I do know this, I will not be offering my clients the option to choose between hourly and value billing. I refuse to perpetuate a system that allows me to charge more to a given client the less efficient I am. My prospective customers will have the choice to use me and my value billing system – or they can go to a “traditional” lawyer who bills by the hour. As my site says: “No more stinkin’ timesheets.”

[thanks to aaron geller and matthew homan via cc]

How Legal Blog Writing Can Help Build Your Law Practice

The plan is to use the blog as a motivator for building a law practice. Not just one that makes money, but one that looks forward, leverages technology, and anticipates new trends. If you will, the law firm of the future. That said, I am currently a solo practitioner. What I know is that I want to grow my business. I don’t know whether that means recruiting partners, hiring paralegals or associates, or adding other staff. I don’t know whether that means growing the business physically, virtually or a combination of both.

So, how will a blog help grow a law practice? The idea is to write about one thing at the start of each work day that is critical to building the business. I have a vision for building a law practice. One that provides great quality, leverages technology, and emphasizes customer service.

I imagine that this is how IBM started. The founder of IBM, Tom Watson Sr, as quoted in The E-Myth Revisited, described how IBM built its success:

“IBM is what it is today for three special reasons. The first reason is that, at the very beginning, I had a very clear picture of what the company would look like when it was finally done. You might say I had a model in my mind of what it would look like when the dream – my vision – was in place.

“The second reason was that once I had that picture, I then asked myself how a company which looked like that would have to act. I then created a picture of how IBM would act when it was finally done.

“The third reason IBM has been so successful was that once I had a picture of how IBM would look like when the dream was in place and how such a company would have to act, I then realized that, unless we began to act that way from the very beginning, we would never get there.

“In other words, I realized that for IBM to become a great company it would have to act like a great company long before it ever became one.

“From the very outset, IBM was fashioned after the template of my vision. And each and every day we attempted to model the company after that template. At the end of each day, we asked ourselves how well we did, and discovered the disparity between where we were and where we had committed ourselves to be, and, at the start of the following day, set out to make up for the difference.

“Every day at IBM was a day devoted to business development, not doing business. We didn’t do business at IBM, we built one.”

The promise I’m making is to regularly write about one new thing that would help build a law practice. I plan to focus on five separate areas: legal services (product quality and packaging), business development (marketing and sales), office management (technology, systems, knowledge management), recruiting (virtual and real team building), and finance (billing rates, pricing models, cash flow).

My hope is that by writing this blog I will move my business forward and inspire others to do the same. I also want to encourage others to share their thoughts on growing a law practice, by posting comments on this blog.

[thanks to marcin wickary and roger glovsky via cc]

Cloud Computing: Truly Beneficial or Highly Overrated?

Current processing trends seems to embrace the concept of Cloud Computing, also known as SaaS (Software as a Service), rather than the traditional locally installed and hosted PC application. Are SaaS applications truly beneficial, or a passing trend that savvy users should avoid?

DeskTop Business Solutions supports and maintains both platforms — a locally installed and hosted (PC/LAN) and a SaaS Law Practice Management application. Both are of equal quality. What are the concerns, advantages, or disadvantages of the different platforms?

Control of Physical Data

PC/LAN applications provide ready access to data, but also require that the law firm manage and safeguard this data. If destroyed through virus, accident, theft, or fire, there must be provisions in place to resume business with a current backed up copy of the application and data. What costs are incurred by the firm in managing locally installed data?

1. IT personnel often must be hired to design, configure and maintain an automated backup system.
2. Backup media must be purchased and replaced at regular intervals.
3. An off-site system must be available should you need to continue business after a disaster. This system must include a restoration device identical to the backup system, such as a tape drive, to restore the backup from.
4. An employee of the firm must be assigned the DAILY responsible to verify a successfully completed backup. They must replace the backup media, so that that the current backup is secure and the next backup can execute.
5. The actual contents of the backup should be reviewed to ensure that relevant files are actually backed up. Many backups ignore files in use. Therefore, if someone neglects to sign off of the Law Practice Management system, it’s possible that this database will be omitted from the backup.
6. The backup must be stored in a safe and secure off-site location, with copies maintained for a reasonable period of time.
7. Backups should be routinely restored and tested to verify the accuracy and reliability of the backed up data.
8. Office servers should be equipped with power filtration and battery backup to ensure data is not corrupted. Batteries must be checked and replaced annually.

SaaS applications provide the ability to offload data management services to IT professionals. Management provided by DeskTop Business includes the following:

1. Data is securely hosted and managed by the Cloud provider eliminating the time and costs involved in locally managing this data.
2. Data is continually backed up and encrypted. Copies of this encrypted backup are stored in multiple off-site locations on a daily basis, using state of the art data security procedures. Backups are retained for a full year.
3. Subscribers have full and continuous access to their data and can download a complete copy at any time. All downloaded data is delivered in an easily portable Excel format.
4. Internet transmissions between the user and server are securely encrypted.
5. Data is protected by state of the art security practices, including multiple firewall protection, to minimize the possibility of data corruption through virus or unauthorized access.
6. DeskTop Business’ servers are located in secure, locked down, climate controlled, fire resistant, hosting facilities with redundant power supplies and multiple avenues of Internet access.

System Maintenance and Support

PC/LAN applications require the law firm to be responsible for installing and maintaining the software application. What are the time and costs incurred by the firm in providing this service?

1. IT personnel are usually hired to install the software and correctly configure multi-user accessibility.
2. Using a combination of PC’s and Mac’s are discouraged. Windows applications do not naturally operate across varying platforms.
3. Enhancements are typically purchased and must be installed on all PC’s within the firm. During installation it’s common to encounter conflicts with various computers and/or different versions of operating systems which complicate the upgrades.
4. Upgrades or enhancements must often be done by IT professionals. The process often includes special backups, installations, conversion of data and problem resolutions with technical support. Since technical support is generally not available off-hours this often translates to application down-time during business hours.
5. Technical telephone support is more difficult when the vendor doesn’t have direct access to the user’s application. The user will try to communicate a problem but may omit key information, or the vendor representative may not correctly grasp the problem. Either option may result in an erroneous answer.

SaaS applications simplify and virtually eliminate system maintenance.

1. All software is accessed through an Internet browser eliminating the need for installation of application software on local computers.
2. Enhancements to SaaS applications are automatically installed by the service provider and immediately available to users by simply logging on. Enhancements are much more frequent because they don’t have to be packaged and shipped out as new “product releases”.
3. Support questions can be quickly and accurately answered. With the user’s permission, a DeskTop Business representative can log on to the users account, view the exact situation, and provide the correct answer.

Accessibility

PC/LAN applications are designed to be accessed from the location at which they are installed. What concerns are associated with PC/LAN remote access?

1. PC/LAN applications are not designed to be accessed from outside locations and naturally discourage utilization of the application while away from the office.
2. Remote access usually requires the purchase and utilization of a third party program, such as GoToMyPc or pc/Anywhere.
3. Remote access often requires that a PC remain on and unattended during remote access.
4. Remote access may require contracted IT support to configure the remote solution.

SaaS applications are designed to be accessed from anywhere at any time. It doesn’t matter where you’re working, your office, home, clients office, court, or while traveling. Secure unlimited access is instantly available through any Internet browser.

What happens to my data and application if my Cloud Computing service goes out of business?

We can’t speak for all Cloud Computing organizations, but DeskTop Business has been in business for over 30 years and remains on the cutting edge of technology. Even so, we do have a contingency plan in place to protect our subscribers.

1. We’ve established an arrangement with another Service Provider to serve as a backup and host our application in the event DeskTop Business ceases operations.
2. We provide this backup provider with a current, encrypted, copy of an off-site data backup. This data cannot be viewed or accessed by anyone except high level Desktop Business IT personal.
3. In the event DeskTop Business ceases operations, our corporate attorney will immediately contact all LAWS/Pro subscribers, forward the necessary security accessibility information to our backup provider, and request that they initiate service. This can all be done in one business day.

Summary

Cloud computing is a technological advance truly driven by consumer benefit. It provides a quality application, combined with an entire collection of services, much cheaper and more efficiently then could be provided otherwise. Cloud computing securely manages the law firm’s data, eliminates upfront licensing fees, significantly decreases IT costs, and provides anytime, anywhere access. Offloading these services to a cloud computing service allows the law firm to redirect time away from time consuming and costly system maintenance to increasing revenue by providing additional billable services to clients. If you would like to experience these benefits consider a Cloud based Law Practice Management system such as LAWS/Pro.

Peter D. Konetchy is President of DeskTop Business Solutions which has been in business for over 30 years offering time, billing, and accounting software to the legal profession. In 2001 DTBusiness introduced their 100% Internet-based Law Practice Management application, LAWS/Pro, which includes calendar, time, billing, accounts receivable, general ledger and a document repository. We at LawVibe.com are pleased to have DeskTop Business Solutions as a sponsor of our website. Further information can be obtained from their website at dtbusiness.

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