1400 billable hours

For 2012, the partnership's income was $70,000. The firm's billable hours also cover overheads and partners' profit share. In other words, for every non-billable hour, said firm clocked 3 billable hours. Although billable hour requirements ranged from 1,400 to 2,400 hours per year in 2004, most offices reporting a minimum require either 1,800 or 1,900 hours (24% and 21% of offices, respectively). Nowadays, Ivan leads STP Informationstechnologie AG's Sofia RnD center with project/development management, culture, strategy, and special project initiatives. When maximizing the amount of billable hours an attorney has, it becomes necessary to increase the number of lawyer work hours worked overall. This practice was already adopted around the 1970s (at least as far as we have checked), and there are some indications that the targets back then amounted to about 1,300 billable hours per year. Clear separation of items, paired with timely recording, will help you stay sharp in your billing records. And the higher the staff’s billable hours, the higher the partners’ billable hours. In short, these are all activities outside actual client projects. For reference, recently I heard about a law firm that has budgeted around 50 hours per YEAR for “innovation activities”. (I feel this is sufficiently clear but still…). While above are clear non-billable time examples, sometimes the distinction may not be so obvious. Across all 106 firms the average chargeable hours target on a firm-wide basis was 1,282 hours and associates achieved an average of 1,124 hours. However, it may surprise you to learn that lawyers objected to this fee structure for about 4 decades before it became mainstream. And even with the most virtuous and well-intent players, the risk of compliance and professional conduct is ever-present with the billable hour. It represents the percentage of total work time that may be billed and collected. If you are rather fresh to the debate and would like to delve in - just read on. And that is natural, given how long it has been ingrained in the legal services industry. However, the real elephant in the room is - does measuring time, utility, and any derived metrics provide the right information that law firm partners need to hear? The same goes for costs. Lawyers are rewarded with profits and career advancement by charging as many billable hours as they humanly can. Hourly billing assumes there are parts of work that law firms can charge (i.e. Measuring time is essential for planning resources and costs. legal fees) can be so polarizing). scale). attorneys, lawyers, and/or solicitors) that bill by the hour feel its deficiencies (whether they openly comment about it or not is irrelevant). “Rate” in my view implies that each passing unit (e.g. It is true, billing by the hour is pretty straightforward. "Having billable hours goes hand-in-hand with having work delegated to you or finding new work from new and existing clients," she said. If everything revolves around billing time, law firm leaders may stop paying as much attention to other aspects of their business. As of the date of this writing, below are law firms that (almost) exclusively charge their services by the fixed (and/or some other appropriate) fee model: Radiant Law (UK): “We only charge fixed fees and don't keep timesheets, so our clients always know what they will pay and our interests are aligned...”; Bespoke Law (AU): “We (...) scope the work accordingly. And if you wish to be 100% certain you are not getting yourself in such a situation, you may want to: Track your time as it happens. And even that requires some forethought by the law firm leaders. Examples may include various items that aren’t necessary for or don’t even belong in the project roadmap. When partners spend time in firm management, practice development and staff mentoring, this is more valuable to the firm than doing billable work that can be delegated to staff. You're focused on hitting your numbers, not on doing a good job. Normally it is calculated as a rate between the total collected amount and the total billed amount. John Chisholm, Director at Innovim Group, was once challenged during a webinar by one of the attendees. Even if the end product varies based on your clients’ input, as long as the rest of your legal service can be put in a standard frame, your service is scalable. Billing by the hour isn’t scalable. If you are an associate, you can use the above benchmark to understand your Management’s expectations. who invented the timesheet; how or when did the Billable Hour become popular; what is the current state of hourly billing vis a vis alternative legal fees; how BigLaw uses the Billable Hour (for charging, measuring and forecasting); what are BigLaw billable requirements; how much you need to work to hit your 1800, 2000, 2200+ annual billable targets (and is it even humanly possible to bill 3500 hours annually); what are ethical and compliance risks of the Billable Hour; is the Billable Hour slowing down legal innovation; how do you scale your billable hours, and what to do to actually create a scalable legal business; why law firms still use the billable hour, and why would clients accept it nowadays; are there any law firms without billable hours; and how you can stop using the Billable Hour - if you choose to do so... ...then, by all means, dive right in. Any lawyers that may have not already started to bill their hours were certainly quick to start right after. (what else do you need to transition into the “legal products” business?). Hence, if a law firm boasts the Utility Rate of 75%, it means that in any given 100 hours of office time, 75 hours were billed, and 25 hours were labeled as non-billable. It shows the percentage of total work time that may be billed and collected. For those of you that are more familiar, feel free to jump into those sections that interest you the most. (this is one of my favorite aspects of transforming legal service businesses - namely - Productization of Legal Services. In my personal humble view, true legal innovation: is more than change. After all, there are only so many business hours in a day. Therefore, by the very definition, the Billable Hour does not scale. It just makes sense. Proponents of high partner billable hours: Partners have high billing rates and their work doesn’t have to be corrected much, if at all. More often than not, law firm partners would present such (discounted) hourly rates as standard in their pitch materials. Utilization rate foreshadows a law firm’s financial health in any given year; Write-offs. But how is this legal fee pricing model applied in practice? At 1700 hours, that's 34 billable hours per week if you use a 50 week year, or 6.9 hours of billable time per day, in a 5 day week. In practice, law firms would usually set their overall billing rate table by using the above method. By the 1940s, it had become an ethics violation even to undercut the aforementioned prices. It is good to be you. Namely: strategic planning, business development, networking, marketing strategy, developing your marketing and sales funnel, staffing, training, internal administration, (etc.) As mentioned above, when we discussed scaling, you need to decide for yourself if you wish to be in the “legal products” business rather than in the “legal services” business. As mentioned above - at the very best it could be said the Billable Hour could tolerate legal innovation. Even more damaging is the fact that not all hours are “billable” and every attorney knows they have to work approximately a third more hours to bill out at that rate. Scaling is typically present in software product companies. The formula goes as follows: “EP” (equity partners) represents the total number of equity partners in a law firm (it may also represent a number of equity points that said partners own - depending on the internal structure); “L” (leverage) represents the number of full-time employed staff (non-equity partners), and include all billable staff (e.g. Posted by 3 days ago. According to the National Association for Law Placement, the average number of billable hours required from a first-year associate is 1,892 hours for the latest year listed, which is 2016. What is scarce are good systems for delivering legal services. And if you feel like you don’t have enough work to match that, you may try to be proactive and approach your superiors. One told me that - if a fee-earner had a particularly good day - they will clock about 4.5 billable hours, out of the assumed 8h workday. Even a law firm partner who was proclaiming the 2400 billable annual target a bare minimum for associates decided to call it a day after a few years of raking 3500 billable hours. Sure, everyone loves collecting the bills - it is the tedious work that comes ahead that may cause headaches at times. The goal of the said article (much like here) was to entice you to keep seeking answers on your own. Is the Billable Hour slowing down legal innovation? billable hours), as well as those that are not chargeable (non-billable hours). It is a system that feeds us new ways of solving problems within our niche. I recently graduated with a legal studies degree, and I actually found a job during the paramedic. Billable hours can be of any percentage value e.g. 50h is just barely over a standard business week. If you already have to work under the billable hour model, the best you can do is to be disciplined about it. "Relationships inside and outside of the firm matter. Usually, as time goes by, law firms would define more specific rates for various positions and/or professionals. Hourly rates are exactly what the name suggests - prices that law firms attach to an hour of project work. The billable hour has endured the test of time thus far. To be fair, when we analyze practice management metrics, firms with higher partner charge hours do out-earn firms with low partner charge hours. Can law schools shape the next generation of legal? At more senior levels, greater importance is placed on bringing in new business vs working on projects. (that way, if you fail at innovating your business model, you will do so in a strictly controlled environment - a “lab”, if you will). Billable Hours Target – Each staff member has a target for billable hours. (and just as I finished penning the above paragraph, I discovered this article that discusses how hitting the 3000 billable hours target is possible through sheer hard work, dedication, and self-sacrifice. Beauty is in the of the beholder, and the same goes for value. E.g. Nowadays, there are many time tracking applications that assist with hourly-based billing. At firms … Case in point - the law firm which “budgeted” 50 hours per year for legal innovation. However, to be fair, while legal innovation can support the hourly billing model, the opposite isn’t really true. Have you ever wondered how can BigLaw set their annual billable targets? (I will stop here before this article turns into a session on how to productize your legal services - as mentioned, this topic requires its own entry). Some lawyers may feel hourly rates are an easy way to communicate to clients, hence they aren’t likely to cause any confusion. They have their own businesses to run, their own innovations to worry about. If you have any other interesting sources that I should consider, please let me know in the comments, and I will make sure to update this article. The webinar takes place on 16th December at 4 pm GMT. Billable hours: 1,400 – 2,000 target. The situation might be different in other segments and geographies. And, in at least one practical example (mentioned above), it may be as low as 56%. Furthermore, flat rates are at times confused with “fixed fees” - which are entirely different pricing models altogether. While the “Big Law” phrase is commonly used as a reference to large law firms, George Beaton removed the space and coined “BigLaw” - the phrase that he uses to describe the business model in use by traditional law firms. Meister considered “U” and “TE” as short-term profit drivers, in the sense that these variables, once adjusted, would affect profitability in the given business year. These were the clear signal for lawyers to hop aboard the time billing train. So to avoid such ethical and compliance risk, you would likely underestimate the time you took. (in the above, simplified, form) has no regard for meritocracy and individual quality of departments or team members; does not provide any answers to situations where recovered billable hours and/or blended billing rates are falling due to external market factors; employ various hourly rates (setting those rates is an art in its own right); scrutinize billing reports and keep their finger on utilization rate, billable targets, collection rates, etc. individual or position-based rates in a certain proportion. However, to sum it all up, you may want to avoid the Billable Hour altogether, if you are concerned by any of the below: Billing hours involves overhead. lawyers, paralegals, etc. Above is simply not the case if you use, for example, upfront value-based pricing method. I think I have an explanation. Conversely to the above categories, a blended rate comes as a single rate for all legal professionals and/or positions. Flat hourly rates. The results are surprising and counterintuitive:  The higher the partners’ billable hours, the higher the staff’s billable hours. If you want to maximize short term profits, go ahead and have your partners work high billable hours, but this eventually will make the firm less successful, and probably less profitable, in the long term. As I wrote before, the best entrepreneurs aren’t afraid of adjusting their business model, where needed. The ladies and gents at Avvoka [...], The Innovation in Law Studies Alliance (ILSA), an initiative aiming to help law schools modernize study programs, will gather some of the most renowned experts in innovating legal education. However, this doesn’t mean you have to change your practices entirely and immediately. Additionally, there are certain milestones that can be added to the Billable Hour fee arrangement which may condition the payment. An example here would be recording 40ish minutes as 1 hour in your timesheet; I believe I have recently been at the receiving end of a more round-up practice. (Adding a sixth day brings the average to 5.67 hours per day.) And conversely, do firms with low partner charge hours experience higher productivity from their staff?”. While the Billable Hour has certainly played its role in advancing the legal profession, there are certain questions about its viability for the future. billable hours; “R” (recovery) is the rate at which the billable hours were recovered (this correction is needed given write-offs, etc. In 100% billable hours, the client pays a consultant for every hour they spend on the project. We surveyed 100 companies and found that most service-based companies that bill hourly require employees to bill at least 31 hours per week. These hours were otherwise spent in rendering legal services. Point is - you could be stacking hours upon hours doing non-productive, low-value work. You may feel that law firm hourly billing has been around since the very dawn of the legal profession. And they would be right. Even if you apply fixed fees or some other alternative fee arrangements, you need to stay on top of your profit margin. The “get paid regardless of the outcome” statement is true only for the “pure” hourly model. It is not a finite action, fact, or state. Moreover, you should aim to start small, and experiment on a small scale. By definition, blended rates are a (weighted?) While convenient and presentable, the billable hour does little to communicate what law firms SHOULD be doing to get their bottom line up. they add more leverage). These three “P”s are a big part of what we need to innovate around, and that’s true whether or not the billable hour goes away. What is billable time? However, this is as far as simplicity goes, I am afraid. (and no wonder why, under such pressure, some attorneys succumb to certain unethical billing practices). you need to determine if your services are scalable in the first place). Good lawyers are not scarce. "The Billable Hour is a classic case of restricted autonomy. Hence, the first step is (besides having your resolve to do it in the first place) is to determine if there are any aspects of your business model that can be replicated easily without considerable or proportionate cost. This seems feasible until you realize that the work that an attorney does that is billable is only a percentage of their total work. As far as I was concerned, an email with a detailed write-up would have been perfectly fine. The billable hour (aka the hourly based billing) is a law firm business model whereby lawyers charge for services on the basis of the time they spend in services production and delivery. Exceeded 1,400 billable hours. Let’s look into some data. Billable targets put needless pressure on lawyers. If the partners are keeping their own billable hours lower by delegating work to staff, it seems logical to expect staff billable hours to be higher. Furthermore, the respondents seem to be less convinced lately that alternative fee arrangements will take over completely. (“how come?” you wonder as you shake your fist in disbelief). The Billable Hour is still the cornerstone of the BigLaw business model. Billable hours represent work hours that a staff member reports as being chargeable to a client. Individual performance aside, as a rule of thumb, law firm partners should strive to reach about 70 - 80% utility rate. So, if you are lucky to be working for a law firm that scores consistently over 80% utilization rate, you may find 2000 or even 2200 billable hours target quite attainable. (granted, the “total hours per business day” number assumes completely free weekends. Conversely, Meister considered “L” and “BBR” as long-term profit drivers. In the contemporary world of clutter, the only way to stick out from the noise is to lend a helping hand. In 1940, Smith’s Hale and Dorr went on to fully implement the Billable Hour (down to the very six-minute increments, which Smith also devised as the minimum time entry). Doesn’t seem like a lot? Instead of focusing on maximizing your billable hours, you may try to think about how you can scale your business. In the 19th century United States, a fixed-fee schedule was reinforced by the Bar Associations. The end result gets scrutinized, ends up in the bill, and sent over to clients for approval. The Billable Hour model (more often than not) requires law firms to: (it’s a lot of overhead, vis a vis non-hourly billing, and alternative fee arrangements, is what I am saying). However, they also try to change one aspect at the time. But how many law firms can boast with such utility rates? I believe that the majority of these firms’ partners work these high hours because they are either (a) intentionally choosing to focus on short-term profits to the detriment of the long-term or (b) have no choice but to work these high hours because they can’t find enough qualified staff. And even then, once adjusted, it may take longer to affect law firm’s profitability. In this article, I am going to focus on the Billable Hour as a BigLaw legal billing model of choice. Everything that I have mentioned above - dubious incentives, bill padding, bloating hours, etc. But the average number of billable hours required for first-year associates at firms with more than 700 attorneys is … Partners made in 2020: 6. Sebastian Hartmann, global head of technology strategy at KPMG, remarked at the ELTA’s 2019 annual congress in Madrid: "If you want to innovate - something needs to happen before you go to see your client And that is non-billable work…"  - Sebastian Hartmann. At the same congress, José Angel Sadin of Lefebvre remarked that „75% of #lawyers feel they need to innovate, but only 23% of firms have allocated an #innovation budget“. Namely, when:-. Naturally, the rules of Professional Conduct, issued by Bar Associations and their equivalents, also touch upon the subject of legal fees. Most other businesses do not use this type of system, as they generally do not charge their hours to a paying customer. To bill ten hours each day, for most lawyers, is to put in 14 hours. Can you turn some aspects of your service into a product? D. Casey Flaherty, Director of Legal Project Management at Baker McKenzie, had the following to say about lawyers and innovation: “Lawyers need to start thinking about how they can build systems. Non-billable activities are usually those that get you and your law firm to some billable work. However, due to some reasons, law firm partners have decided not to bill them at the end of the day. while it is a very important topic, I will mention it only briefly here - to give you a taste of the subject - however, it deserves its own article). Everyone talks about it, but how many truly understand it, let alone do it at all? In my experience, such rates are most commonly used in commercial full-service law firms; Preferential and project-based rates. ); “U” (utilization) is the number of hours charged to clients in a given year - i.e. You need to determine how can you streamline the delivery of your service to a virtually unlimited number of customers. It seems as the conviction about the relevance of alternative fee arrangements peaked in 2014 at staggering 82%, and has been waning ever since. Even hitting as many as 1400 - 1800 billable hours per year must feel challenging. Jonathan Dutton; Dale Frisk; Dick Harper; Silver Services Revenue Award – Field Service - In recognition of services performed at or above Innovative-IDM’s high standards. And even where manipulation doesn’t take place, the incentives aren’t really stoked in clients’ favor with the running clock. If you lead the value discussion with your clients before you agree on project parameters, you may realize you would be better off charging them at their perception of value. It is not characteristic to service companies simply because labor does not scale. However, sadly, nothing could be further from the truth (even without getting into the whole debate on efficiency vs effectiveness). It is easy to get caught in day-to-day minutiae, however, precise time tracking can save your class; Itemize properly (i.e. Associates are often said to be under strain, fearing that they may not meet billable hours targets. Consequently two thirds of the traffic is queuing in the outside lane. And even in the best of cases, it doesn’t really do much for lawyer’s work-life balance. Law firms are a pretty good example here - they hire more junior attorney staff once their workload goes up (i.e. you can also find the updated list here. If you charge your clients by the hour, you can expect all the minutiae that comes with recording time, writing proper descriptions for the itemized bill, scrutinizing billing reports, discussing said reports with your clients, and have them approved. He closely follows and writes on future of law, legal tech, ALSPs, and new ways of delivering legal services. Namely, an example of implicit issues with the Billable Hour is in the time recording itself. This new target will take effect 1 September 2016, but on the plus side 50 pro bono hours will count as billable. By the late 1950s, the complexity of litigation and commercial legal work vastly increased, so the pre-set fixed-fee schedule could not objectively keep up with reality. ); “BBR” (blended billing rate) is the hourly rate of the said law firm in a given year, calculated the following way: BBR = [law firm annual revenue] / [total recovered utilization]; “TE” (total expenses) represent all expenses of the said firm in a given year. However, with the advent of Cloud technology, software product companies found a way to reduce their production and shipping costs dramatically. So, 4.5 / 8 hours means their billable to non-billable rate is closer to 1.3:1, while their overall utility rate equals about 56%. No estimates, ranges, nor hourly rates…”, Hive Legal (AU): “We offer alternative fee arrangements that provide certainty, reward efficiency, are not tied to time recording (and) do not rely on leveraging into a large fixed cost base…”. Summers 2020: 12. No wonder lawyers working under such a regime often feel chewed out. Sometimes partners like to present ratios in their board rooms and boast any increase. Most of the congestion was caused by middle lane & outside lane idiots who refuse to move across when the lane is clear. Billable hours are the amount of time spent working on business projects that can be charged to a client according to an agreed upon hourly rate. The end result was an email response, with the attached analysis in a DOCX format. I have always favored the low-partner-charge-hours model. The Billable Hour is a convenient pricing model for lawyers. Disclaimer: Altman Weil polls Managing Partners and other law firm leaders in 810 US-based law firms that have over 50 lawyers. Is 1,400 billable hours going to be that hard? This phenomenon more than offsets any reduction in partner billable hours due to delegating work to staff. This was particularly true in the olden days (when the legal services market was still the vendors’ market). Each partner withdrew $1,000 per month throughout 20X0 and 20X1. It was meant to be a cost-accounting tool. If you know of one or ARE one, please drop me a line to editorial(at)cloutlegal(dot)com - would love to update the above list), Slice of History: Reginald Heber Smith and the Birth of the Billable Hour - Wilmer Hale, The (modern) father of the billable hour and timesheet - Verasage Institute, The Virginia couple that gave birth to the Billable Hour - OZY, Law Firms in Transition 2019 Flash Survey Report - Altman Weil, Remaking Law Firms: Why and How - George Beaton and Imme Kaschner, Philosophy - The Cravath System - Cravath, Swaine & Moore LLP, Managing the Professional Service Firm - David Maister, Billable Expectations: 40 / 168 / 1800 - Michael Kelly, Law Firm Blended rates - How to Avoid Getting Taken for a Ride - BanyanRFP, Billing 3000 Hours: Is it possible and how to do it - Lawcrossing, Model Rules of Professional Conduct: Rule 1.5: Fees - ABA, Business Ethics: Best Practices for Designing and Managing Ethical Organizations, Why Timesheets are Innovation Killers - Tim Williams, Biglaw Partner Used To Think 2400 Hours Was The Bare Minimum — Now She’s Left The Practice Entirely - Above The Law. Moreover, law firms began to put forward the “minimum billable hours per annum” requirements. Much more frequent are, however, examples where billable hours are just slightly bloated, by, for example, following: Excessive rounding-up. Certain tasks or milestones may take more than usual or anticipated due to the lower rank of staffed professionals. Additionally, it was mentioned that "a Law Firm" instructed their lawyers to spend as much as 50h per year on innovation. Here are billable hour facts for partners in multi-partner firms from The Rosenberg 2012 MAP Survey: 33% have fewer than 1,000 per year; 45% have between 1,000 and 1,300; 10% are in the 1,300s and 12% rack up more than 1,400 billable hours a year.

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