The billable hour’s partner in crime, the timesheet, is holding back law firms, John Chisholm writes.
The adverse effects of the billable hour on law firm culture, the quality of life of lawyers and their relationships with their clients have been well-documented in recent years. Even so, resistance to change is deeply entrenched and time-based retrospective billing remains the poison of choice for most law firms and their clients.
The movement away from the billable hour has been led by a growing number of innovative and courageous firms (incumbent and new) that have come to the realisation that time-based billing is a sub-optimal business model built on outdated philosophies. But in the main, most change has been prompted by clients seeking:
• lower fees
• predictability and certainty of fees
• pricing aligned with value rather than time spent
For an increasing number of firms and commentators and advisers to the legal profession, the debate has moved on from “do I continue to bill solely by time?” to “do I offer clients a range of billing and pricing options including time-based billing?”. This represents progress, but in my opinion it’s still the wrong question. While I strongly encourage and support firms offering a range of pricing options, none should include time-based pricing. All prices should be agreed upfront, even if that agreement allows for contingencies and unforeseen circumstances.
One discussion, however, that seems to create unwarranted fear and opposition from any number of quarters, is suggesting that firms should also burn their timesheets. After all, it follows, doesn’t it, that if you don’t keep timesheets you can’t possibly bill by time? As Chicago lawyer Pat Lamb, founding partner of Valorem Law Group, succinctly stated recently, one of the great benefits of not billing by time is that it “frees you from the tyranny of timesheets”.
The reasons often espoused for the retention of timesheets have been solidly debunked, both from a theoretical perspective and by the real-world experience of professional firms, yet the timesheet aficionados refuse to concede. So, let me state it once more, and unequivocally: if you want to truly move away from billing by time, you must not only ditch all time-based billing – you must also tear up your timesheets.
I understand the hourly billing model has been and, for many, continues to be financially successful, and that for generations of lawyers it has become part of their DNA. So of course it will (excuse the pun) take time, probably years, for most individual firms to make a successful transition to what is not just a different billing or pricing model, but a different business model.
I appreciate that even if owners of law firms get it, for many it will be totally impractical to dispense with their timesheets immediately. They will continue to retain them at least until they become more competent and confident with their new pricing offerings.
I also know that the larger the law firm, the harder it is to foster real change as there are more minds to shift, the risks appear greater, and they have invested a small fortune in their management systems in support of the “we sell time” philosophy.
I know, too, there are those so entrenched in their way of thinking that they, together with those with vested interests in retaining timesheets, are never going to be swayed.
Letting go of timesheets is not going to appeal to these individuals, but it does appeal to the increasing number of lawyers who genuinely have an open mind, are looking for a better way of practising their craft and want to be part of an early adopter movement. For those who understand the potential benefits of non-time-based pricing but are also wary of throwing the baby out with the bathwater, here are just a few reasons timesheets are bad for your practice:
1. timesheets keep firms mired in time
While some firms are making the transition to a timeless practice, they retain their timesheets like a security blanket. But most of the firms that successfully kicked the hourly habit will tell you they regret that they didn’t kill off their timesheets sooner. They ultimately realised that as long as the firm retained timesheets, it was extremely difficult not to relate everything they did, every price they set, somehow back to time. This in turn often led them to charge lower fees than they might have in some cases, and to turn down profitable work in others.
2. timesheets send a mixed message to your lawyers and team
It’s demoralising at worst and confusing at best to tell the world your firm sells value while telling your professionals that their time matters so much that they need to track it in six-minute intervals.
3. timesheets discourage innovation
Can you point to even one really innovative organisation in the world that makes their people account for every six minutes of their day? I can’t. Recording time simply discourages the kind of creative thinking that creates real value.
The message from management is: “Grind it out like you always have because any innovation that would reduce the time it takes to achieve a result will just make it harder to fill your quota and reduce our revenue.” Not many people will go looking for new and better ways to do their work under a regime like that. In contrast, you only have to ask the firms that have ditched their timesheets and they will tell you the creativity unleashed when you go off the clock can be astounding.
4. timesheets tempt otherwise ethical lawyers to act unethically
It is unsurprising that timesheets foster a culture where lawyers sometimes face huge ethical dilemmas and anxiety over recording the time they really spent on something, or recording a time to meet their expected measurements and rewards.
5. Feeding the time machine is expensive
Think about how much you invest in your practice to feed the beast. Some data indicates between 7 and 12 per cent of a firm’s gross is spent supporting the time-recording system. I think that figure may be conservative. Even if those numbers are in the ballpark, you could, in theory, ditch your timesheets and give your whole firm a month’s vacation with no loss of profit. Or better still you could invest all of it in education, training, technology, business development and other initiatives that would make a real difference to your practice.
6. timesheets do not predict your costs
A timesheet is just the timekeeper’s best effort at recording the time spent on some activity. Even if one rigorously tabulates and analyses historical timekeeping data, this tells you very little, if anything, about how much time future matters might require. As opponents of flat fees love to point out, legal matters are very unpredictable – even with similar fact patterns, two cases or transactions may take wildly different paths.
7. timesheets do not reveal anything about what a legal practice needs for sustainable success
No amount of timesheet data can tell you the quality of your work or how the client regards your service. timesheets can’t tell you how to improve professionally. Most importantly, perhaps, for some – timesheets can’t tell you how much more a client might have been willing to pay.
8. Time spent recording time is wasted time
There is absolutely no economic or accounting justification for treating time as a cost. Salaries are a cost. Rent is a cost. Paperclips are a cost. Time is not a cost, it's a constraint, but rarely a binding constraint. Defenders of the timesheet often claim to use them to measure costs, but in my 35 years in the legal profession I am yet to see or experience a law firm that truly uses timekeeping data to measure or project costs. They use them to bill, to punish or to reward.
9. timesheet-based costs are misleading and arbitrary
Dividing an arbitrary subset of your largely fixed costs by an arbitrary number of hours to be worked by an arbitrary sub-set of your people gives you a deceptively precise – but still arbitrary – number.
10. timesheets build silos and are a disincentive to collaboration
Firms that maintain timesheets encourage an “I, me, mine” culture. If I have to fill my timesheet, I’m going to be less likely to share work with a colleague. This leads to lawyers thinking about their “personal books of business” and the portability of their clients.
Despite all the deleterious effects discussed here, for firms that bill for time, timesheets remain a necessary evil. However, for the increasing number of law firms that truly understand the value of their services and their costs, timesheets are but a costly distraction that stands between them and their real potential.