The law firm billing problem in 2021

Smokeball is dedicated to helping law firms be better, more successful businesses by increasing their organization, productivity, and profitability. Smokeball CEO Hunter Steele recently published a report exploring why lawyers may be billing for only a fraction of their time spent, and what law firms can do about it.  

He found that in our modern age, changes in communication style, document creation, and sheer complexity of billing requirements have created an environment requiring very different practice management tools than those used 20 years ago.  

Read on for an introduction to his findings, and be sure to download the full report to learn more.  

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Multiple large-scale studies have shown that fee earners in small law firms are billing, on average, only 2.02 hours per day. The first time I read one of these studies, I dismissed the stats as some kind of marketing ploy. Lawyers are always talking about reaching billing targets and filling out time sheets, and the majority I speak with are working 10+ hours per day. The studies must be wrong was my assessment.  

After the second and third reports came out saying the same thing, I decided to dig in myself. I set about to understand two things. First, is this true? And then, if it is true, why is this the case and, more importantly, what is being done about it? Is there really a small law firm billing problem? 

The deeper I dug into this topic, the more people I spoke with, the more data I crunched from thousands of small firm fee earners, the more intrigued and the more passionate I became. Fast forward two years and it is now not only my own obsession but the obsession of the entire team at Smokeball.  

Is there a problem?

The original source of investigation came from the Legal Trends reports from Clio in 2017 and 2018. We decided to run the data ourselves for fee earners across the Smokeball client base globally. Was this number, this measly 2.02 hours per day, true? It turned out that while our clients were billing slightly more than this, the number was not substantially higher.  

We then started talking to firm owners and fee earners within our client base, asking them if they believed (both in the numbers and in their minds) that small law firm fee earners were only billing an average of 2.02 hours per day. The most common answers we received and themes we saw included: 

• Yes, we know we are terrible billers but that is just the way it has always been; 
• I don’t know what our average hours per day billing is but it wouldn’t surprise me if it were that low; 
• Probably, but our clients won’t pay anymore anyway so there is no way to change it 
• Well, I do a combination of time billed and fixed fee work so it is probably not an accurate reflection and I definitely bill more. 

This last comment, around the combination of time billed and fixed fee work, intrigued us the most. Maybe this is where the numbers are skewed? Perhaps this would be the answer as to why the reported average is so low. Maybe things are not so dire after all. So again, we went back to the numbers.  

A fixed fee activity is actually no different to a time-based activity, other than that it is for a pre-set number of hours. To illustrate, a bill of $1,000 with a fee earner billing rate of $250.00 per hour, is four hours work. Using this logic, we ran the analysis again to see whether it would increase the numbers. It did, but by very little. The average hours billed per day over a 12-month period was still only 2.6 hours across thousands of hard-working Smokeball fee earners.  

The data was verified, and it seems there was a clear problem. Small law firms and their staff play a very important role within our communities yet on average they were billing for only 25-30% of their day. How are they to provide a great service, produce good results, employ staff, and build a great business when there is a fundamental problem with the unit economics of what they do. 

Has small law firm billing always been this way? Why isn’t it improving?

As we spoke to small law firm owners, fee earners, industry experts and our own team at Smokeball, we uncovered many reasons why this problem exists, and one of these reasons was one I identified with personally.  

My father owned a small law firm, running a general practice with himself and four or five staff. He did a combination of fixed fee and time billed work as was required over many years. If we look at a common workday for my father in 2001, he was not on the computer very much. For his time-based work, he generally only had to record durations for client meetings, court appearances, dictation, and for taking the odd phone call. It was fairly easy to keep track of his time as he would spend a chunk of time on one activity before moving to the next. 

Fast forward twenty years, and the world for fee earners has changed dramatically. The same fee earner now spends most of their time in front of a computer screen and the make up of their time entries have changed significantly for two main reasons – click here to view the full report.