May 2007
Volume 3, Number 1
Table of Contents

Profit More By Billing Less: Technology That Saves Time And Fattens The Bottom Line

By Marc Lauritsen

The Productivity Paradox

Imagine completing the paperwork for typical transactions three or four times faster. Improvements like that are common with document assembly software.

Imagine finishing due diligence projects twice as fast. Efficiency gains like that are possible with intelligent checklists.

Imagine clients handling some aspects of what you do, getting (and paying for) results they need with little of your time. That's now very doable with online knowledge tools.

Could you make good use of such improvements? What's the catch?

Law offices can skyrocket their productivity through new technologies, but the fiscal payoffs are not obvious. In an hourly-billing world, greater efficiency can mean lower billables. Why invest in time-saving tools when time is what you charge for?

Many lawyers face this productivity paradox. The faster they work, the less money they make for a given assignment. There is a built-in tension between efficiency-improving technology and strict hourly billing. But there is also tension between inefficiency and business prosperity.

Here are some ways creative lawyers have found to unleash the profit-enhancing power of advanced practice tools. The first section discusses those who continue to bill hourly. The second discusses those able to bill in different ways. A third section covers techniques that apply to both kinds of people.

How To Make Money By Saving Time, Even If You Bill By The Hour

Maybe you're not ready to walk away from the billable hour. Don't let that stop you from working smarter and improving your bottom line.

1. Reduce the hours you don't bill for anyway. First, think about all the money you lose because you write off time. Good systems can help eliminate some of the time you feel compelled to write off because some timekeeper recorded more hours than can be justified, or because the overall bill seemed too high or the client complained. "Hidden caps" on bills are common. Explicit caps are increasingly seen, causing pain when accidentally over-run, and nail-biting when strategically under-set.

2. Improve work conditions for people whose time you don't bill. Don't forget that efficiencies for staff whose time is never billed, like secretaries, can reduce operating costs. Document automation can radically improve word processing efficiency, while minimizing errors and frustration. Making do with fewer support staff -- who are happier and stay longer -- could do wonders for your overhead.

3. Get more business. Practice automation can strengthen client service, quality control, and competitive advantage, as well as reduce costs. Offering high quality service with faster turnaround is a proven way to attract more business. Technology investments can help draw attention. You can pitch these improvements to clients, put them in proposals, and highlight them on your website.

4. Keep business you might otherwise lose. Perhaps you have a book of business that is not especially profitable, but for strategic reasons would be costly to lose. Maybe your anchor clients are actively shopping for better prices and services elsewhere. You can't afford not to innovate. Corporate counsel increasingly demand controls on outside legal costs. Loyalty will not stop them from moving work elsewhere if your charges are too high. One partner at a large New York firm told me that using document assembly is "the only way to stay competitive."

5. Add a transaction fee to recover technology costs. Document automation pioneer Eric Little recommended that firms add on a per-transaction cost that roughly splits the billable time savings between firm and client. Systems can be viewed as hypothetical banks of time that can be drawn down across many transactions. You make deposits of time as you create and maintain them, and you make withdrawals -- with interest -- as you use them. Reductions in hours billed are more than made up for in transaction fees.

6. Raise your rates for work that leverages automated expertise. Systems that demonstrably enhance your professional effectiveness can help justify higher rates. Quality work done quickly is worth more than work of lesser quality or speed.

How To Make Even More Money Through Value Billing

You've probably noticed that some of the most valuable things you do for clients are not fairly measured by the time they take, and that an hourly approach penalizes you for becoming more efficient on commodity tasks. Value-based billing opens new windows of profit opportunity on both fronts.

1. Use new technologies in contexts where billing practices already reward  greater productivity. Some practice areas, like contingency fee litigation,  consumer bankruptcy, immigration, no-fault divorces, estate planning, and municipal finance already have a tradition of fixed or not-to-exceed fees. In these contexts, the basic economic analysis is simple: Given the volume of work you do (or could do), and the time/cost savings you could realize by deploying productivity-enhancing tools, is there an adequate return on investment for the costs of those tools?

2. Charge for the time it used to take you before automating. Many lawyers engage in some de facto value billing: They charge for the time some task ordinarily would have taken, or should have taken, even if they happened to have actually spent more time (or less time, because similar work was recently done for another client). Absent clear client disclosure, "hypothetical" time accounting like this raises ethical concerns. But with client consent, it can serve everyone's interests. Nancy Grekin, a Honolulu practitioner, notes: "Pigs get fed and hogs get slaughtered. If a lawyer charges too much the client will complain, and it doesn't take bar association ethical standards for the lawyer to figure that out. I see the billing for automated documentation as the amortization of the lawyer's time and expertise in creating that document and turning out something that is correct and is what the client wants and needs."

3. Set flat rates for service packages that are amenable to automation. If the competition keeps busy doing a certain kind of work at an average price of $X without any significant knowledge-leveraging technology, power tool-equipped providers should be able to do that work at a significant discount and still make a profit. One way is to specify fixed prices for well-defined service packages. If automating enables you do a job in one-half the time it ordinarily would take, charge a flat fee that is perhaps 10 to 15 percent lower than the average fee pre-automation and you can make a lot of money.

How To Make Money Either Way

1. Think long term. Consider the contributions to firm quality and productivity that go beyond the immediate bottom line, such as training new attorneys, capturing knowledge of staff who leave, reducing errors, and making practice less dreary. Quality-of-life improvements like these will more than pay for themselves over the long run.

2. Ask clients to underwrite some costs of your technology. Think of billing as the process through which clients are asked to contribute appropriately to the cost of services they receive. Given the opportunity, long-term clients might happily underwrite technologies that enable you to deliver services more cost-effectively. Not only will that help you serve them better with little out-of-pocket cost, but the results can often be put to profitable use elsewhere. One top firm arranged for a client to fund the development of the knowledge base underlying a system, which was independently valuable to the client, and then sold systems based on that work to other firms, law departments, and a publisher.

3. Consider hybrid scenarios. None of these approaches need be pursued in isolation, and some naturally go hand in hand. For instance, Lee Knight, an independent document assembly application developer based in San Diego, reports: "One of my clients (a group of estate planning attorneys and paralegals) realized that in order to take advantage of document assembly efficiencies they had to change their billing practice from an hourly rate system to a combination of (1) fixed per-document charges (varying according to the type of document) and (2) per-hour counseling charges for any work exceeding the baseline for preparation of those documents. It took some time to figure out the charges, but the new system is working well. The client's clients seem to like the new system because it gives them a more definitive idea of what their costs will be."

Doing Well By Doing Good

Advanced technologies can richly reward firms that figure out how to leverage them. Often an hourly-billing mind-set gets in the way of both profitability and client satisfaction. But you don't need to jettison current billing arrangements to do better.

Lawyers tend to under-invest in technologies that enhance their effectiveness. Not enough of them have figured out how to profit from practice technology, and until they do, our profession will fail to live up to an important aspect of its potential. Making money from working smart as well as working hard is a recipe not only for lawyer prosperity, but for the effectiveness of the legal system.

Clients crave quality, attentive service, predictability, and good value. In the long run, lawyers who use the latest tools and techniques responsibly will get the work -- and the results -- they deserve. Let's see ... drive costs down, bring revenues up. Sounds like a formula for profit -- whether you bill by the hour or not.

This article originated in TechnoLawyer, a critically acclaimed legal technology and practice management resource for lawyers. Thanks to an alliance we've established with TechnoLawyer, you and other members of the State Bar of Texas can search the thousands of product reviews, howtos, and other articles in the TechnoLawyer Archive free of charge (TechnoLawyer normally charges $65 for such access). To take advantage of this member benefit, please visit www.technolawyer.com/texfree.asp.

MARC LAURITSEN, a Massachusetts lawyer and educator, is president of Capstone Practice Systems ( www.CapstonePractice.com), a firm that specializes in document assembly and other knowledge tools for professionals.

COPYRIGHT 2006, ALL RIGHTS RESERVED This article is a TechnoLawyer Exclusive.

Copr. (C) 2006 West, a Thomson business. No claim to orig. U.S. govt. works. This article is reprinted with permission from West, a primary sponsor of the General Practice, Solo and Small Firm Division.

 

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