How Law Firms Can Move to Value-Based Billing
September 20, 2018
The billable hour model is dead, at least according to the 2017 Report on the State of the Legal Market, released by Georgetown Law’s Center for the Study of the Legal Profession and Thomson Reuters Legal Executive Institute. Law firms have experienced a decade of stagnant demand for law firm services because clients don’t want to pay for a lawyer’s time; they want to pay for the value the lawyer is delivering. So, how can law firms create value-based billing models that are profitable? The following tips can help you move your law firm to a value-based billing model.
Change Your Paradigm
The traditional law firm thinks in terms of how much time is spent on a task and how to bill a client for the time spent on the case. Lots of legal practice management software offer timer functionality to help attorneys keep track of their time. In fact, Smokeball is the only law firm software that includes automatic lawyer time tracking software so you don’t have to manually start and stop multiple timers, but if law firms want to build a business that has a “value-based billing system” they must shift they way they think about their work. Instead of thinking about how to bill for time spent on a case, they must think about the value they are delivering to the client and how to help the client understand the value of the tasks a lawyer performs. Even if you do track your time and bill by the hour using a simple legal billing software, creating a value-based billing model can be helpful in a variety of ways, such as getting law firm insights around profitability by matter type or showing clients the full scope of services provided when their case is over.
When law firms set aside the billable hour model, they must make sure that they are getting paid for the true value they’re delivering, and they need to make sure that they’re not wasting — or not capturing — time. This can be achieved by using efficient systems that make it easier to quickly do tasks that would take hours if done manually. Practice management systems that make it easy to bill clients and track an associate’s time spent on tasks can save law firms (and individual attorneys) hundreds of hours in a year. By using efficient legal practice management software that can shave off hours in a day, law firms can benefit from a value-based system where they can charge for the value of what they’re doing not just the time they spend on certain tasks. This shift is especially important when administrative tasks can be done in an hour instead of 10 hours or 15 minutes instead of 60 minutes.
Using efficient systems in a value-based billing model is also important because automatic time tracking offered by programs such as Smokeball allow law firms to track how each associate spends her time. How much time did they spend assembling a document? How much time did they spend reviewing a document? Did they spend more time on a task than your fixed fee will cover?
The best case software include features like legal document preparation software, law office calendaring software, attorney time tracking software and an integrated billing software for attorneys — all in one solution. By using one system to keep track of all the work done by an associate, you can get a real-time and exact estimate of how much time tasks take and create a fixed fee that covers that cost. Understanding how time is spent on certain tasks helps a law firm implement an accurate value-based billing model that isn’t a money losing venture.
By using efficient legal practice management software that can shave off hours in a day, law firms can benefit from a value-based system where they can charge for the value of what they’re doing not just the time they spend on certain tasks. This shift is especially important when administrative tasks can be done in an hour instead of 10 hours or 15 minutes instead of 60 minutes.
Offering a client only one fixed fee option for legal services is often a bad strategy for law firms making the switch to a value-based billing model. Offering a tiered fee model with multiple options allows law firms the flexibility to serve clients who may need legal services but who have a tight budget. Law firms offering Bronze, Silver, and Gold fixed fee packages can offer different levels of service depending on what the client needs, wants, and can afford. But to do that, law firms adopting a value-based billing system will need to understand what basic legal services look like for certain types of matters, what more advanced legal services look like, and what they require in terms of expertise and time. There are some legal services that simply can’t be offered at a bare bones minimum cost, and understanding that will help the law firms deliver the value the client can afford while also giving them the level of service they need to get the outcome they desire in their case.
Let’s take a look at a few tips on how to effectively implement a tiered billing system:
- Discuss the client’s legal case before offering the service level. Some clients may automatically insist on the cheapest level when the scope of the work required can only be done at a higher level. To avoid this issue, first discuss with the client their case and make recommendations based on what you know their case needs and what you can provide at specific price levels. If you think the case can be resolved at a silver or gold level but not at the basic bronze level, tell the client that and help them understand why.
- Discuss the value offered at each level. As you offer the value-based fee levels to a client, discuss the benefits of each. Maybe the bronze level is inexpensive but is handled by a less experienced attorney. Or, maybe the gold level is more expensive, but an attorney who has dealt with similarly complex cases will be assigned to the matter. Helping the client understand the value that each service level will deliver will help them come to an agreement with you about the fixed fee. And the biggest benefit is that this fee is agreed to upfront, which may eliminate fee disputes.
- Discuss the case’s scope. It’s important that you discuss the scope of the case based on the service level the client chooses. Help the client understand what they need to do to avoid an expansion of the scope and in the end an increase in fees. This is where clear communication with the client is important. They must know how to keep the scope small enough to fit into the service level fixed fee you’re offering. And you should have policies in place to address what happens if the scope of the case expands.
- Consider offering a payment plan or let the client pay credit card online by invoicing directly from your cloud-based practice management software using a payment integration like LawPay.
If you’re thinking about moving to a value-based billing model, or want to set one up to compliment your time-based billing, you must use systems that accurately track your and your associates’ time and activity. Automatic law firm time tracking software like Smokeball will enable you to offer value-based fixed fees without putting your law firm into a money-losing tailspin.
Learn more about Smokeball
Book Your Free Demo
Ready to see how Smokeball client intake software helps you Run Your Best Firm? Schedule your free demo!