Implementing an Alternative Billing System for Attorneys alongside Billable Hours

Many attorneys charge based on the billable hour. But there are two basic reasons for using a billing practice that does not rely solely on time actually spent on matters. One is internal while the other is external. Both provide excellent justification for considering and implementing an alternative billing practice. Such an alternative is widely known as value billing, or value-based billing, since the dollar amount billed is based on a value derived from methods other than the traditional hourly cost basis.

The internal reason for using an alternative billing method is that the standard hourly based program carries income limitations related to an implied billable hour ceiling. An alternative billing program allows the attorney a greater opportunity for profit. The old formula that hours worked equal profit must be more closely examined. Often, it is more accurate to say that hours worked equal revenue, which does not necessarily mean profit.


That specific issue is not within the scope of this article. The external reason for alternative billing practices is marketing oriented because it fills a client need by allowing the client to be sure of anticipated expenses as well as pay for what a matter is worth rather than what it costs. This enhances the attorney-client relationship. It also makes a value statement with regard to the attorney's practice, since the client ultimately assigns the value which, with the attorney's guidance, provides an equitable agreement for all involved.

ALTERNATIVE BILLING POSSIBILITIES

To the extent permissible by ethics considerations, the number of alternative billing possibilities is limited only by the attorney's creative imagination. Billing practices can be so attorney and situation specific that they are virtually unduplicated anywhere else in the world. For the attorney who wants to find a billing practice right for his or her practice—and just as important, his or her clients—there are several options from which to draw. Among the most often used alternative billing methods available to attorneys are
 

• Billing by Job or Project.
• Contingency Variations.
• Benefit-Conferred Billing.
• Blended Fees.
• The "Hunch" Method.

Billing by job or project often is most liked by clients. It is easy to understand and eliminates client fears regarding what matters will actually cost versus what attorneys say they will probably cost.

The contingency variation billing method is related to the amount of the transaction. If the client has a $500,000 matter, the attorney's fee can be negotiated on the basis of that amount. Of course it is not always easy to pin an exact dollar value on a client matter, particularly with regard to litigation. But this is an alternative which can be more satisfactory than hourly billing in many situations and has been used successfully in divorce and estate matters.

Benefit-conferred billing is a third option available to attorneys. This is appropriate when the attorney shares some of the risk involved. It is in the form of a contingency fee related to successfully negotiated or pursued matters. Real estate and land use matters may lend themselves to this alternative.

The blended-fee option places a value on the whole legal service without regard to which partner, attorney, associate, or staff member provided the service. This means a bill will show only hours provided, with the same hourly rate applying to whoever the individual service provider might be.

The ''hunch" method of billing is the most risky for both attorney and client. The amount of the bill is determined according to what the attorney believes the matter is worth to the client, what the client feels the matter is worth, and what the client is willing or able to pay.

STANDARDIZING CERTAIN PROCEDURES

Ultimately, the attorney is seeking a time value which will equal profitability. A sure way to do this is through the use of standardized forms and procedures. Because so many legal tasks are repetitive, especially with regard to how the attorney or office handles matters internally, a great deal of time and therefore expense can be spared by standardizing frequent procedures to the extent possible.

Personal relationships must be unique, but tasks do not have to be.

Alternative or value billing has significant potential for client relationships as well as revenue. It places greater emphasis on value rather than cost, which, of course, is what the client ultimately wants. It results in fewer surprises for the client when the bill arrives because the legal expenses would presumably be in line with the value perceived by the client for services rendered.