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Is the Billable Hour Holding Your Law Firm Back? Why You Should Get a Head Start on Value-Based Billing

By Brian Balistreri posted 04-28-2023 10:17


Please enjoy this blog posted on behalf of the three co-authors, Kristin Rhodes, Senior Practice Manager, Paul Hastings LLP, Nikki Shaver, CEO, Co-Founder, Legaltech Hub and Harriet Joubert-Vaklyes, Senior Project Manager - Legal Operations, CBRE Group.

In the first part of this blog series, we posited that a shift towards value-based billing for law firms would give rise to many benefits in the legal industry. We focused on external client demands and offered an alternative model from service design, the Jobs to Be Done (“JTBD”) framework, as a way of rethinking value.

Our original post was informed by a series of surveys we conducted about the current state and future predictions around value-based billing in the legal profession. In this blog we will reveal those survey results and the likely shifts ahead, along with a discussion of how these updated requirements might change the internal structure of firms (in a good way!).

Surveying the Market – What Might Cause a Change Towards Value-Based Billing?

Our means of gathering this data was admittedly informal – through social media polls – but the results are nonetheless insightful.

Getting from There to Here

Hardly surprising, but most respondents viewed client demand as the most important driver of change in the way that legal services are valued and billed. While firms are currently charging for “non-attorney” time and technology, those things are not a core driver of their business. Or at least not yet.

We believe that client expectations will merge with advancements in the market; continued developments in AI will make efficiency a requirement, not just a nice-to-have. This paradigm shift will spill into other areas of product delivery. Value-based pricing is inevitable.

Firms may be nervous that moving away from the billable hour will reduce the fees they generate. However, re-evaluating with the Jobs To Be Done framework allows for charging flat fees for work that might be completed rapidly, because the value inherent in that work is more important than the time it takes to produce it. It allows for the generation of revenue from streams other than purely lawyer-driven work, since value emanates from those sources as well.

Improving the Culture

In fact, we think this value-based model is great news for firms! Changing the business model can lead to important modifications within the organization in the following ways:

-Wellness: The shift away from the billable hour and embracing of new technologies means that associates will be under less pressure to work the long hours. Their individual value could be reframed in terms of their intellectual work product, not by merely hitting 2,000+ hours.

-Wider Range of Talent
: compensation models would have to be reviewed to take into account the increasingly important role that other professionals play in the ecosystem. Their value—which inherently detracts from the attorney billable hour—would be fully realized as contributing to the end-product.

These changes can promote a better culture within a law firm by recognizing value of the performance of all contributors—not just attorneys—and lessening the emphasis on long hours worked.

Tying It Back to the Bottom Line

Things like improved wellness and equality might be seen as inherently good things to softies like us, but we can take it a step further and think of ways that these attributes might translate to positive changes to the bottom line. A simple perspective-shift that invests in resources firms already have can provide critical resilience as follows:

It positions firms to absorb the benefits of artificial intelligence. Those firms who figure out how to use new technologies, like generative AI, which inherently stand to reduce attorney hours and increase efficiency, will fare better than those who don’t embrace technology as part of the service-offering.

Leverages broader range of talent. Those firms who can monetize the value of other highly-skilled professionals will inevitably translate that value internally, positioning themselves to attract better talent, which will in turn provide better service to the client.

Will position firms to weather economic issues and culture shifts. Law firms are facing a tough period ahead. Associate compensation at big firms has increased by as much as 20% over the past few years while demand has dropped amidst a looming recession. Meanwhile, we are seeing a generational shift among younger associates who are rejecting the exchange of long hours for high salaries. All of these things put pressure on the traditional model and create an opening for firms who can capitalize on other products.

If clients are demanding this kind of change from their outside counsel, we should be listening. It’s good business and it might even make law firms better places to work.