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> Is Pricing the Same as Billing?
post Mar 17 2011, 03:36 PM
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Is Pricing the Same as Billing?

What is the difference between pricing and billing for a law firm? The price for legal services is typically an hourly rate, and that is what is used to define the engagement and get the business. Certainly the billable hour has plenty of negatives associated with it. Lawyers who bill by the hour are in no different a position from other hourly laborers. Businesses that do not bill on the basis of time can earn more for their service or product per unit of measurement when they become more efficient. The more efficient lawyers become, in our current hourly billing business model, the harder we have to work to earn the same money as before.

Because most lawyers are paid by the hour, their billings are features' lists: this is what I did, this is the time I worked and this is what you owe me. If clients pay their bills without complaint, lawyers assume that such a laundry-list billing approach works. However, an unpaid bill generally indicates that clients don't understand the results achieved for them, or don't appreciate the value of those results. This does not imply a professional lapse by the lawyer in preparing the bill. Billable hours in theory will provide the necessary details, but not with entries like "work on motion for summary judgment, 20 hours." Break any such charge into its basic elements, with the amount of time needed for each. Itemization helps clients understand what you did.

If you use a different method of accounting, such as value billing or fixed fees and do not help the client understand what you did for them, why, and what value you provided to the client, they will continue to fail to understand what you did and how you helped them, and continue to procrastinate on paying the bill. Yes, value billing demonstrates to clients the worth as well as the cost of the legal services they receive, and bills them accordingly. But even when using the concept of value billing, lawyers may be safer to keep track of time expended. Where your billings may come into question, either by a judge needing to approve the fee, or because of a fee dispute needing to go before an arbitration panel, the tried and true method of demonstrating what you've done usually comes back to hourly metrics. At the very least, it is a management tool that demonstrates the profit and loss of the representation ... and the reasonableness of the fee.

If a client agrees to value billing, why should time matter? The most important reason is the ethical requirement, under the Rules of Professional Conduct and all state bar regulations, that fees charged must be "reasonable," and time is one metric for that. One way to enhance the client's knowledge of value is to prepare a budget of events, time and costs for each matter of significance, and get the client to accept it. You can bill for value based on passage of time (e.g., monthly), passage of benchmarks noted in the budget or other appropriate method. But, the bill is still for value as measured by specific benchmarks.

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