Is It The Hourly Bill Or The Lack Of Budget Which Is Most Harmful To The Client Relationship?

After a year experimenting with various billing models and approaches in discussing billing issues with clients, I have come to some conclusions. First of all, you should know that I still keep track of my time on an hourly basis much like traditional law firms do. I have a policy in place under which many things which traditionally firms bill for, we don’t. For instance, client communications are exempted from our billing model. We have performed a significant number of projects on a flat fee basis but, as some observe, there are clients who are nervous about paying a flat fee because they think they might be paying too much. We started keeping track of the time we spent on flat fee matters so that clients could see that we really did spend the time achieving their goals. This approach has evolved into a max-budget approach. Essentially, we do projects for a maximum fee or the hourly fee, which ever is less. This works on most of the matters we handle for clients and solves the perception that a flat fee may be over bid. The client is essentially guaranteed a maximum fee, but could pay less if the project doesn’t take the time allotted. The attorney takes risks that he/she won’t appropriately quantify the project. Certainly, some projects have been under bid. We make the client aware of this fact and let them know they are getting a deal. They appreciated the fact and this further strengthens the client relationship. 90% of the time however, we are extremely close to the maximum budget for the project or come in under budget. What I have learned is that clients want to know what the project is going to cost up front. I know that a significant percentage of clients have retained us because of the cost certainty that this provides. There is no question in my mind that clients have referred their business associates and friends to us based on their appreciation for our billing approach. Our business is booming as a result.

In litigation and arbitration matters, we often cannot put a max fee on the project. However, we still work within budgets. Typically, we tell the client what the budget is for the coming month and what we expect we will deliver within that budget. At the end of a months billing cycle, we report back to the client how we did on our previous months budget projection and whether in fact we achieved the things we set out to achieve. We also project our goals for the next month and put a budget on that activity as well. Again, the clients appreciate the budget discussions and being able to plan their own finances accordingly.

So maybe the real problem isn’t hourly billing per se. Perhaps the real problem is the current incarnation of the hourly billing model used by law firms. Perhaps the savior of the billable hour is the max budget.