The Billable Hour
The concept of the billable hour is controversial in nature. It’s a business practice that creates polarising opinions on both sides. Critics argue that, with it, the work performed by lawyers becomes a matter of quantity over quality, repetition rather than creativity, and that it forces a culture of overworking. On the contrary, those in support say that the billable hour improves time management skills and allows people to better assess their overall profitability.
While many will agree that it can be the antithesis of productivity, it’s possible to boost productivity even within the billable hour model. However, to truly grasp how productivity can be improved while working under the constraints of the billable hour, it is important to understand the motivation behind the billable hour and why it is so controversial.
What is the billable hour?
Reginald Heber Smith, Harvard Law graduate and father of the billable hour, put the concept forward as a logical and transparent way in which to value the legal services being performed. He believed that tracking time in six-minute increments would be simple to understand, which meant less time would be spent working out the bill and more diligence would be given to the client. In addition, clients could easily decipher the exact work their lawyers had completed. In short, profit was never the motivation.
Why is the billable hour disputed?
There are many sceptics of the billable hour’s ability to improve productivity, and with reasonable justification. When it comes to the question of “what is a billable hour”, critics tend to emphasise what is not billable, that is, any six minutes not actively working for the client. Stop for lunch? Non-billable. A call with relatives? Non-billable. Five minutes for a coffee break? Non-billable.
This creates a culture of work-obsessed lawyers who are not taking the time they need to rest and reset. There is a lack of distinction between working and not working, particularly in firms that require a higher number of billable hours.
This model can also lead clients to believe that the work they pay for isn't as valuable as it could be; rather than paying for quality, they are simply paying for time. There exists a conflict between the client's desire for expeditious work and the lawyer's ambition to bill for the most amount of time possible.
There is considerable pressure for lawyers to apply this approach because if they fall short in terms of time, they are no longer deemed profitable. However, as mentioned, profit was not the focus when the billable hour was first introduced.
With the billable hour model still the most popular billing method by a large margin, it begs the question, is productivity the enemy of the billable hour? Or can improving efficiency actually benefit the model?
How to maximise productivity while increasing billable hours
Most law firms set their lawyers a target of between 1800 and 2500 billable hours per year, or up to 10 hours a day - if no holiday or sick days are taken and no weekend work is undertaken. This target also only accounts for work completed in service of a client. Bear in mind that lawyers will be performing many other functions simultaneously.
So, how can productivity be increased when it seems like lawyers are slaves to the billable hour? Below, we detail two possible solutions.
Why you need to set goals first
To understand how to maximise productivity within the constraints of the billable hour, the most important first step is to break things down.
One of the simplest ways to comprehend how your yearly billable hours can be achieved is by taking the total and dividing it by 12. This gives an approximation of the ideal hours required per month, which makes it far easier to stay on target.
Once you know what you can achieve in a month, you can set realistic goals and better manage your time. However, this monthly schedule isn't the only goal on which to focus. To achieve success in the legal profession and eventually rise to the rank of partner, you usually need to exceed the annual billable hour target.
According to the Yale Law school, if your yearly target is 1800, you’ll need to work your regular hours with the addition of another 20 minutes every day for a total of 1832 hours. However, when factoring in holidays, lunches, bathroom and coffee breaks, meetings, and all the other aspects of your role, the estimate climbs to 2420 hours.
To ensure you are on track with your monthly billings, you will need to regularly self-audit. This will help you to understand where your productivity may be lacking and show you exactly how many hours you’ll need to work to reach your target. Rather than attempting to catch up at the end of the year, you’ll be able to maintain a consistent level of productivity throughout.
So now you’ve broken down your billable hours into comprehensible goals, how can you best utilise your time to hit these targets?
Leverage legal tech
One of the most challenging issues faced by lawyers is time management concerning billable and non-billable hours. Learning to become more efficient is an effective means of improvement, and this is where technology can be of significant assistance.
At first, the idea of utilising legal tech to improve efficiency when working under the constraints of the billable hour may seem somewhat of a paradox. Efficiency may be considered a dangerous threat to your attempts to increase billable time. However, legal tech makes sense when looked at through the lens of utilisation, realisation, and collection rates.
Utilisation rates refer to the number of billable hours worked in a day divided by the number of hours set out in a work day. Realisation is the total number of billable hours charged to the client - after discounting and subtractions. Collection rates reveal how many billed hours are actually paid by your firm’s clients.
According to the 2022 legal trends report, the average percentage of a workday put toward billable hours is 33%. Using a 12-hour work day as a practical example translates to approximately four billable hours. The report also found that realisation and collection rates equated to 84% and 89%, respectively. Therefore, of the four billable hours, approximately three hours and twenty minutes are billed to a customer, and from that amount, the client only pays for three hours.
In essence, that’s a 25% margin or return of the lawyer’s time for those 12 hours. When seen in this light, the argument that using legal tech is going to eat into your billables doesn't stand. AI legal tech actively works to turn the 75% wastage into billable time through the automation of non-billable tasks that chip away at the time that could be spent working for the client, on firm-wide initiatives, or pro-bono cases.
The rise of fixed fees
Although the billable hour is still the most prevalent billing method, there is an increasing demand for firms to diversify their billing options. A substantial 67% of clients would prefer to pay flat fees for legal services, and only 48% were satisfied with the hourly rate. While many lawyers recognize the need, only 37% of firms offer a fixed fee billing option.
If fixed fees become a deciding factor for clients in their choice of firm, legal services will have to adapt their billing methods. Legal tech then becomes instrumental in another way as lawyers are actively incentivised to deliver the work as efficiently as possible.
Final thoughts on billable hours and productivity
A comprehensive understanding of your utilisation, realisation, and collection rates is the first step to becoming more productive within the confines of the billable hour. Legal tech is advantageous here for reducing non-billable ‘leakage’, but unless you know exactly what your professional goals are, the benefits will be diminished.
Once you have identified your yearly, monthly and weekly objectives, you can manage your billable hours far more effectively. From a fixed fee perspective, legal tech is key for maximising firms’ performance, value, and efficiency.
Definely offers legal tech solutions to promote efficiency and minimise time spent on non-billable tasks.
Definely Proof utilises AI technology to automate hundreds of proofreading checks with the mere click of a button. Correct punctuation, quotes, styles, and fonts, to ensure all formatting is consistent with your firm’s house style. It also flags terms that have not yet been defined in your legal document.
Definely Draft offers another way to address time management issues by facilitating friction-free legal drafting and helping conscientious firms meet their ESG targets to reduce carbon emissions across the organisation. This solution allows lawyers to draft legal documents without ever leaving the provision they’re reviewing, and removes the need to print hard copies of legal documents, as you can access and edit multiple documents on one screen.