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The Death of the Billable Hour

fat-rich-lawyerLove it or hate it, the practice of law is changing. Most legal professionals don’t want it to change, but it’s changing because their clients are demanding it. One of the biggest changes on the horizon involves lawyer billing practices and fee arrangements.

The Billable Hour

The most widely used billing method in the legal industry today is based on the “billable hour.” For non-lawyers, a billable hour basically means the lawyer will bill you a set rate (usually in the $200-1000 range) for every single hour spent working on your case. This includes time spent on phone calls, emails, text messages…everything.

For lawyers, billable hours are great. They literally just add up every second they spend thinking about your legal issue, and send you a bill for it at the end of the month. But for clients, billable hours are far from ideal.

The Problem with Billable Hours

The billable hour system is basically like going into a grocery store with no price tags on any of the items. You have no idea what things cost, but you know you have to eat, so you put them in your cart anyway. Only when you checkout and the cashier swipes your credit card do you find out what everything costs, but you can’t return anything, even if it was not within your budget.

That makes no sense right? When you need to buy something, like food, you should be able decide what to buy and how much of it, depending on your budget. Likewise, when you need legal services for yourself or your business, you should have some say in what you are paying for upfront.

People like to have a say in things that affect them directly, especially when it involves handing over their hard-earned cash.  But the legal industry has managed to get around this fundamental characteristic of man, forcing people to “pay without a say” for centuries.

The reason it has worked for so long is due to the basic nature of legal services: they are highly specialized, they are in high demand, and they require service providers to have a license and years of training.  In other words, when shit hits the fan and you have no choice but to hire a lawyer, you pay whatever they tell you to because you have no alternative means of getting by…that is, until now.

The Technology Revolution and the Death of the Billable Hour

Today, information is so readily available that people approach legal services much differently. People are reluctant to hire a lawyer when they can find enough information to answer their basic legal questions online. They are even more opposed to paying for something they have no say in, which has led to outrage over the billable hour in some instances.

Billable hours just don’t work in today’s fast-paced, digital world, and the revolution has already begun. When it comes to basic legal services like filing an LLC or trademark, people would rather go with the do-it-yourself approach and use software (e.g. LegalZoom) because they know exactly what they are paying for and how much they’re paying for it upfront.

Other types of legal services will soon follow suit because clients refuse to pay for legal services in a way that doesn’t make sense to them, and technology has started to empower them with alternatives.

The Future: Alternative Fee Structures

As the legal industry slowly embraces technology, changes must be made, and the majority of those changes will be in response to changing demands from the end consumers, aka the clients. Legal professionals that best adapt to these changing demands will be the ones to prevail and succeed in the new generation of technology-enabled legal services.

So what does that look like from a billing system perspective? It looks like alternative fee structures that provide greater transparency upfront.

Flat fee structures will become more and more common because they provide that transparency that clients are seeking. When a lawyer says, “It costs $1000 to form your LLC,” the client knows exactly what service they are getting and how much they will be paying for it. Sounds good, doesn’t it?

But this does not mean that hourly legal work will go away. In fact, it probably can’t in certain instances when there is no better way to do it, such as paying for time spent in the courtroom litigating. But the big key here is transparency.

There has to be better communication with the client upfront so he or she has an idea of what amount of time is reasonable and how much to expect to pay. And there has to be greater accountability on the lawyer side as well, to prevent inflation of hours and excessive hours spent on tasks that don’t matter to the client.

Internet startups (see viewabill) are already tackling many of these problems, aimed at creating the transparency that consumers of legal services are looking for, because even though people may not know they’re looking for it, if you find a way to give it to them there’s a huge market opportunity to be captured. Only time will tell exactly how the legal industry will be transformed, but one thing is for sure: the age-old billable hour is dying off, and the cause of death is a lack of transparency.