Time-based billing has dominated Australian legal practice since the 1970s, often to the ire of time-recorders themselves and, of course, clients. But a growing number of sophisticated clients, and younger generations, no longer wish to subscribe to the outdated time-costing method of recording and billing.

Everyone involved in the charade knows all too well that billing by time is structured for lawyers to charge clients, with absolutely no incentive for being productive. So, why exactly is it that we persist with this model?

Innovative law firms across Australia are making the revolutionary shift towards non-time-based pricing. The momentum generated has the potential to be hugely beneficial to the industry, and to clients.

David Wells is one such innovator. Wells, 60, was a managing principal of Melbourne legal practice Moores from 2007 until 2020. Moores differentiates itself in an overcrowded market of legal service providers by utilising agreed pricing. This pricing mechanism allows clients to know exactly what they are getting and exactly what it will cost. There are no estimates. No ranges. No hourly rates. No time recording.

Before they talk to clients about price, Moores takes the time to understand their client’s needs. Once they understand their client’s situation, they prepare a proposal and provide a fixed-fee cost, often with a variety of three options for scope and price to choose from.

Clients are afforded price certainty, with no billing surprises. This is essentially in line with most other services we receive in the course of our day-to-day lives: building and construction, health, telecommunications, beauty, education, the list goes on.

Wells was at the helm when Moores transitioned to agreed pricing in 2013. He believes that time-based costing hinders practitioners from understanding the value they create and what they are actually worth.

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“It inhibits creativity, innovation, finding out what clients really want and the capacity to delight clients,” Wells says.

Wells explains that time-costing inhibits sustainable relationships.

“Irrespective of the outcome, clients are always surprised by the bill based on time. They may have agreed the rate, but a rate is not a price. They quibble or complain about the time or about who or how many did the work or the necessity for the item. It breeds dissatisfaction and undermines trust and sustainability,” he adds.

Wells is also one of the directors of Innovim Group, a company established in 2017 with a shared view of wanting to move professions away from billing by time to pricing up front.

Innovim understands that clients care about outcomes, not inputs.

“They don’t care about how long the professional took or how much the professional was sweating the small stuff, unless the client is paying by the hour, in which case, the client hates it.”

Wells explains that solutions which deliver client objectives can often be achieved expeditiously, without wasting the time of clients and team members and consuming resources.

“Those sorts of outcomes enable clients to sleep at night. This builds trust. If the client is the right fit, it leads to repeat work, referrals and long-term relationships,” he says.

When asked whether certain practice areas of law lend themselves more easily to value-based pricing, without skipping a beat Wells replies: “No. Show me your expertise and how it is relevant to a customer and I will show you how to price for value.”

This begs the question: why aren’t there more law firms adopting these alternative pricing models?

One possible reason law firms have been resistant to change is because lawyers are conservative by nature.

“There are risks with any significant change exercise, and introducing or changing a pricing model is such an exercise. Conservative people will be deterred by the prospect of something that involves risk,” Wells explains.

There is also a sense of fear within some practices where the key decision-makers have a vested interest in retaining the status quo until they retire. Additionally, some owners of professional practices think that if they don’t record time, they won’t know what their costs are.

“The proposition that time is a cost is one of the most ignorant statements I have ever encountered,” muses Wells. “Professionals who cling to that notion don’t deserve to be in business and won’t be for very long anyway.”

Additionally, Wells points out that many lawyers actually don’t have a clear understanding of the value they create for clients. Without knowing this, it is difficult to then convince clients about a price based on value when you aren’t aware of what clients actually value or don’t believe that you deliver that value.

Culture

Transitioning a firm from time-based billing to agreed pricing is no easy feat. Wells describes that output (actual results, not time on a timesheet) and value will be in direct relationship to the quality of people within a team and the number of them.

“You may have some high-quality people, but if you can’t attract more, you can’t scale and those you have may depart,” he says.

Strong market leaders place culture at the top of their structural requirements, explains Wells.

“Without a culture that your good people are aligned to, you can’t keep them and you can’t recruit others. Putting it another way: culture drives people and people drive outputs and create value,” he says.

Wells’ advice for Adelaide firms looking to experiment in this area is to take a risk: “Try something innovative. Even if it doesn’t pay off the first time, the world will not cave in. All that will happen is that your people will see you having a go and applaud. And you will learn valuable stuff in the process that will improve prospects of success with the next experiment.”

Kit Legal

One such firm who is experimenting with and redefining law is Kit Legal. Kit is a speciality financial services law firm. They embrace innovation and, among other things, have turned time-costing on its head.

They are a 100 per cent subscription-based firm based in Adelaide. They provide clients with unlimited legal support, within the framework of what they do, for a monthly subscription fee.

This means they have no time concept at all. Like Moores, they measure output, not input, and they are driven by genuinely actually wanting to help as many people as they can.

Because 100 per cent of their clients are engaged on an ongoing basis, it means the firm has a steady flow of work without the exhausting peaks and troughs of traditional transaction-based law.

When Kit was established in 2017, lawyer Catherine Evans, 40, and marketing guru Meghann Cannon, 40, found it incredibly rewarding to start a law firm from scratch. They really valued being able to have a clean slate to honestly determine what exactly they wanted their business to be. There was no existing legacy that they had to deal with.

They started by reimagining all the unwritten rules lawyers usually find themselves operating under, like age = expertise, input should be valued over output and time = value. What followed was quite remarkable.

Quoting, time-recording and invoicing

Evans is incredulous when she looks back at her time as a partner in a traditional mid-tier private practice law firm recalling how much time was spent quoting work, time-costing, estimating (and then updating estimates), writing off juniors time and so on. Invoicing and billing would take up days of her practice each month.

“The time in recording the hours, invoicing the hours, all of that, that was such a waste. I just used to think: these are days of my life wasted. With no benefit to anyone. Now we just don’t have any of that. Now we never even have conversations with clients about fees, apart from when we very first speak to them,” Evans says.

Cannon adds to this, from an operational perspective: “Everyone pays the same every month. Probably 75 per cent of them [clients] are on a direct debit arrangement, so I am never chasing invoices. It literally comes in, you reconcile it and it goes out. The odd piece of fixed-fee work, because they are already set up on our direct debit platform, we just do an ad-hoc direct debit that they’ve already agreed to, so from a lawyer’s point of view, it saves a lot of time. From an operational view, it saves me a lot of time as well because I’m not chasing invoices, I’m not generating one-off invoices.”

In addition to ease of invoicing, the business is also very easily able to forecast: “It makes it really easy to make decisions about expenditure and staffing and resourcing because we know what our baseline is going to be.”

Evans and Cannon love having had the opportunity to create totally different relationships with clients through their subscription model. “You’re not talking about fees anymore. You’re just talking about what they need, how you can help them,” Evans describes.

Flexible work

The unique subscription model they have created allows flexibility and certainty, not only for their clients, but also for their employees.

No one at Kit is there to work an 80-hour week and earn lots of money. That is just not their motivation.

“We want lifestyles. We want to look after our kids. We want to have hobbies. We want to go on holidays. We don’t think being a good lawyer means you have to sacrifice all that stuff,” Evans describes.

Before Kit existed, the competing desires to be a good lawyer and a good parent used to really frustrate Evans.

“I don’t understand why these two are so at odds with each other and why the time I spend is somehow linked to being a good lawyer. Because in my view, it’s the opposite. There is no incentive in private practice to be efficient at what you do. You are detrimenting yourself, you’re causing detriment to the firm [when you’re efficient]. It’s that fine balance: you want to be efficient enough that the client doesn’t go crazy, but take long enough that you earn lots of money.”

Evans continues: “I think that the hourly based model is broken and does not work for women in particular. That is my fundamental view.”

So they set about creating this pricing model to better align with their values. Their business is committed to innovation and regularly experiments with staff initiatives. They have implemented a workplace wellbeing policy and offer the option to apply for extra (paid!) annual leave.

One of their most successful innovations has been the introduction of “care-taker mode” in school holiday periods. This mode of operation means that during that period, they have no meetings: “We deal with stuff that has to get done, but you can do that from home, you can do that from Noosa, you can do that from anywhere. But because our billings aren’t actually tied to working hours, our cash flow is the same. People can have time off to spend with their kids in the school holidays and we can be just as efficient and effective.”

Kit has cultivated a team of people that are on board with how they think and who subscribe to the culture Kit has created.

“But a lot of lawyers would not fit this environment and they are freaked out by the flexibility, by not knowing what my target is each day,” comments Evans.

It takes a moment for new lawyers to get their heads around how exactly do I actually demonstrate that I’m a valuable resource. This is a fascinating shift in mindset. Their subscription model wouldn’t work for all firms, Evans concedes, as the technology they utilise is essential to the model, as is the nature of the recurring type work that they do.

However, Evans just doesn’t understand how all lawyers can’t scope and price a piece of legal work, no matter how big it is. This could mean value-based pricing or fixed-fee work.

Evans describes that there is a growing demographic of customers that now expect cost transparency when they engage a lawyer in any market.

“I think the next generation of people instructing lawyers will want more certainty around fees. They can assess the value of this work now. They are educated enough themselves. They have access to so much information. It’s not this hidden art anymore,” she explains.

Innovation, when it comes to costing, requires lawyers to move away from thinking what’s billable, and instead think about what’s valuable. Change in this area requires a strong culture and a shift in mindset.

The continuation of time-costing within the profession has the potential to adversely affect law firm culture and the quality of life for the lawyers working within those constructs. It also has the propensity to greatly inhibit client relationships.

Law firms that innovate could potentially enjoy a more sustainable future and a more ethical existence.