Hiring a Law Firm 101: Understand the Annual Billable Hour Quota

Before hiring a law firm for your business, inquire about the law firm's billable hour quota.  

The business model at most traditional law firms is to keep track of hours worked and bill clients for all the time everyone spends working on the client's file.  This is called "time costing" or "time pricing."   The amount of time spent working on the project determines the cost/price.   

The truth is that most clients of these firms do not like the time costing model, the lawyers who work at traditional time costing law firms know that their clients do not like it,  but they use it anyway. 

Making a bad situation even worse, many time costing law firms set annual quotas for their attorneys and other billable timekeepers to meet each year, and many of these firms tie "bonus eligibility" to meeting the annual quota.   Those who meet or exceed the firm's annual billable hour quota, are eligible for annual  bonuses. Those who fail to meet the firm's annual billable hour quota,  do not receive year end bonuses.  Moreover, the annual bonuses can be substantial: many tens of thousands of dollars.  The attorneys at these firms are extremely motivated to meet and exceed the annual billable hour quota and widespread internal competition exists at these traditional law firms to report and bill the most billable hours each week, month and year.  

When I worked at larger law firms, bonuses were tied to billable hours.  Not once did I receive a billable hours bonus. Why?  There wasn't enough work.   Sure, I could have worked slower, but that's not what any client wants.   

Thus, understand this going in:  if you hire a traditional time costing law firm that ties bonus eligibility to an annual billable hour quota, you are hiring attorneys who are mostly likely being offered large financial incentives to bill your company for working inefficiently and for  performing unnecessary work.  

This is why businesses owners and executives should ask questions about the billable hour quota before hiring or continuing to work with a law firm.
 
My law firm wants our attorneys to be efficient and we will never incentivize them to be inefficient or perform unnecessary work to hit a certain number of billable hours each day, week, month and year, hours which have zero correlation to the value delivered.  That's just dumb.  

This is one reason why my law firm does not have a billable hour quota, and why it will never have one. The work takes as long as it takes, and we strive to work efficiently.   In addition, on many transactional projects, we offer a guaranteed price.  The client knows exactly how much the work will cost. 

This approach is the best approach, because it serves clients best.      

Mark D. Walters | Copyright 2014