A New York Times front page included an article about legal fees: "Billable Hours Giving Ground at Law Firms." This article raised the question whether clients were being treated fairly when the measure of a legal fee is the attorney's time expended. An obvious concern is whether an attorney compensated solely on the basis of time expended has any incentive to work efficiently or, to resolve a matter when doing so cuts off revenue.
The Times reporter analyzed the pluses and minuses of the billable hour process. However, he totally missed one of the primary reasons law firms cling to the billable hour system - the leverage between the $/hour they pay an associate (anyone who does not have an ownership interest in the firm) and the $/hour the client is billed for the associates time.
When clients are billed by the hour, it is fairly easy for a big law firm to lever off an associates time. Let's assume an associate is paid $150,000/year which with benefits say is $200,000/year. Let's assume that associate is expected to bill 2,500 hours at $300/hour ($750,000 in revenue). The math is pretty clear: pay associate $80/hour and bill associate time at $300/hour. While the law firm has overhead expenses (figure 50% of revenue), the law firm makes (in example) about $70 per hour on billable associate time.
Full Article and Source:
Legal Fees: Missing the Point
The Times reporter analyzed the pluses and minuses of the billable hour process. However, he totally missed one of the primary reasons law firms cling to the billable hour system - the leverage between the $/hour they pay an associate (anyone who does not have an ownership interest in the firm) and the $/hour the client is billed for the associates time.
When clients are billed by the hour, it is fairly easy for a big law firm to lever off an associates time. Let's assume an associate is paid $150,000/year which with benefits say is $200,000/year. Let's assume that associate is expected to bill 2,500 hours at $300/hour ($750,000 in revenue). The math is pretty clear: pay associate $80/hour and bill associate time at $300/hour. While the law firm has overhead expenses (figure 50% of revenue), the law firm makes (in example) about $70 per hour on billable associate time.
Full Article and Source:
Legal Fees: Missing the Point
Anybody who has ever hired an attorney understands about billings. And.......billings don't reflect effectiveness....at all.
ReplyDeleteThat's right, Helen.
ReplyDeleteNo one can overcharge like a lawyer -- and also get away with it.