What is Value Billing?

Value billing is a phrase which is often used in relation to professional services such as law. Value billing means different things to different professionals.

We are at a stage in our firm’s growth where hourly billing is becoming less and less apart of our model. While many of our legal projects are purely flat fee, we continue to do hourly billing on a modified and "value" basis. We always talk about and obtain approval on monthly budgets from our clients even on those matters where we are billing by the hour. On many matters, we agree to a maximum spend by the client or charge the hourly fee, which ever is less. This maximum budget or hourly fee approach ensures that the firm has the proper incentives to get the job done efficiently, but also caps the cost to the client for the services. A key part of this approach is documenting the tasks and deliverables, which are going to be performed by the firm on the front-end. Setting the client’s expectation by documenting those expectations is a key feature of our billing system.

The next step for us is to move more of our work into a pure "value-billing" system. This involves defining the client’s subjective goals, analyzing the value of obtaining those goals from the client’s point of view and putting a correlated value on the legal services driven by client value. Essentially, the client agrees to pay a flat fee over a period of time for a given project irrespective of hours. While this sounds traumatic to many law firms, let me assure you it is both achievable and preferable. It results in benefits for both the firm and the client.

When law firms start talking about hours and start focusing on results, good things happen. Lawyers can document and define legal projects upfront, measure the value to the client for those defined services and charge a defined fee for performing the same.

For those interested in taking a look at our firm's current "value-billing" statement, it is set forth below:

Value-Based Billing Policy

Some of Traverse Legal's customers prefer to be billed on a time-based system, where hours are tracked and billed to the client at a specific hourly rate.  Some cases are best suited for time-based billing.  Unlike most other firms, Traverse Legal does not bill for every activity and task associated with the handling of a matter for a client. 

The following is a list of items that we do not charge to clients:

·       Transmittal letters which do not contain significant legal analysis or recommendations.

·       Short phone calls that do not lead to immediate legal work.

·       Update or general information calls to or from client.

·       Any activity that does not add value to client’s immediate matter.

·       Any activity which deals with general information about the client.

·       Any activity which does not work towards resolution of the client’s problem.

Things that we do bill for:

·       Any activity which provides specific value to a specific client problem.

I would be interested in comments concerning this billing statement from the audience, please.  Does this statement comport with the billing model of your firm? 

Comments

[G. A. Napier]

I was excited to see this post because it reflects what I have been doing without formalizing it in writing. Here is a recent post of mine: http://lexingtonlawyer.wordpress.com/2007/03/13/lawyering-and-the-billable-hour/

[Jo]

I find this interesting and am doing a paper on it for class. Are there any firms that do value based billing and be willing to answer questions such as how do they arrive at the specific amount for a project? Do they consider each thing the client needs or give them a "package" wit an amount? I'm focusing on the business law area as well if that helps. I would appreciate any assistance; thank you and have a great day!

[Enrico S.]

Jo: we do most of our work on a flat fee basis. Feel free to give me a call.

[Geoff Hash]

Jo, would you mind sending me a copy of your paper? (gmhash@yahoo.com)