Saturday, January 15, 2011

Hourly Billing - There is Another Way

Attorneys have had a distinct impact on the business world in many ways. One of the most influential is the spread of hourly billing to other industries. Most of us have needed the services of a good attorney at some point during our lives. There are certainly many outstanding attorneys who provide valuable services for complex legal situations.

Yet, the industry practice of myopic hourly billing is a flawed model. If I have a legal dilemma, I can contact an attorney who responds by stating that the charges will be $200 per hour plus expenses. This quote gives me no parameters at all regarding an upside limit to solve my legal issue. Then, I get a maddening bill which covers the following:

* Research - 400.00
* Client Consultation - 200.00
* Answered Phone Call - 15.00
* Copies (6) - .60
* Stamp (1) - .44
Total Due - 616.04

In other industries, the copies and stamps are a business expense and applied to company overhead. Responding to a phone call is simply a part of providing excellent customer service. In providing professional services, there is often a risk of a project, which seems small, escalating into a much larger project. Generating a profit becomes difficult when the time spent far exceeds the original quote.

What if this situation could be handled in another way for a win/win solution? The service provider could tell the client, "Based on the information you provided, my estimate is $500 to $800." If the scope changes, I will contact you with a revised estimate. Now you can effectively budget for this project. As a professional, it is my responsibility for ensuring this project is completed within budget.

With a defined range, the client can perform a brief analysis. Is solving this legal situation worth $800 to me? Has this solution created $800 of value? The problem with hourly billing is two-fold:

1) There are no parameters at all as to the overall cost.
2) Different professionals work at different speeds based upon ability, experience, and motivation. One attorney can effectively complete a project in three hours when others use six to nine.

In any transaction, clients are ultimately paying for value not time. Simply trading time for payment provides a limited view of business development. Yet, making an effort to ensure the services provided equal or significantly exceed the cost is the best way to provide valuable service worthy of referrals or repeat business. Think about it - are there alternatives to hourly billing? I think you know the answer.

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