One of the big problems with hourly billing is that it may not fairly represent the value provided to the client. Let’s face it. Not all “hours” are created equally. Under the hourly approach, there is no distinction between the hour in which the lawyer devises the strategy which ultimately wins the case and the hour he/she spends trudging through a meaningless deposition transcript which is never used for any purpose.
Flat fee or outcome-based billing rewards the lawyer for delivering results in the least time possible. If a given result is worth $5,000.00 to a client, both the client and lawyer benefit if the lawyer achieves that goal in three hours. The lawyer’s hourly rate on those three hours might be $700.00. But the value to the client was $5,000.00. The fact that some lawyers could have spent $10,000.00 worth of time going in circles without achieving the result is a real risk. Thus, the client benefits by the fact that the lawyer obtained the result irrespective of how much time it took.
I sometimes get asked by clients whether or not they will be paying too much on a flat fee basis. They want to know whether or not they would be better off on an hourly basis. The answer is always the same. No client is better off on an hourly basis if they can help it. The reason for the answer is simple. An hourly lawyer has no incentive to get the job done in any amount of time. The hourly lawyer has literally no stake in the end result.
A value or flat fee billing lawyer that defines the deliverables on the front-end is far more likely to achieve the client’s goal than the hourly billing attorney. The hourly lawyer does better if the result takes a long time or is never delivered. I often find myself laughing on the odd occasion where a prospective client requests to be billed by the hour rather than a flat fee. I send those clients on their way to the next attorney, knowing they’ll end up paying two or three times as much as my flat fee quote with no commitment by the hourly lawyer to any particular result.