A Haven For Straight Talk: <b>The Billable Hour: If You're Gonna Use It ... Use It!</b>

Anyone familiar with this column, or my rantings in a variety of other locations (blatant plug for my blog here, http://legalmarketing.typepad.com/blog), knows that I'm not a huge fan of the billable hour. I think it drives a certain kind of “wrong think” about the value of working smart vs. working long. Law firm management folks also tend to use the billable hour as the one “uber number” to drive all other considerations ' including marketing ' aside. Like they say, when your only tool is a hammer, everything starts to look like a nail.

What surprises me even further about the billable hour, though, is how little its use is exploited as a marketing and business tool. All this time and effort are put into keeping track of lawyers' time in 10th of an hour increments … and then it is simply used for its lowest-common-denominator purpose: Billing. That's like spending $4,000 on an African Grey parrot, training it for 2 years to engage in complex conversation … and then eating it.

The Least You Can Do:
Clean And On-Time

I've spoken with lawyers at firms where they are still entering hours on hand-written time sheets and then having secretaries convert them into forms in Word or Excel, and then those documents are e-mailed to someone in the billing department who converts them into a billing program. Then the billing program spits out a form which is sent back up to the lawyer who checks it out, makes corrections by hand, sends the corrections back to the billing department, who enters them back into the billing program, prints out a (hopefully) final form and sends it back to the lawyer who then (eventually) sends it to the client.

In the retail world, we have a word for this kind of bill. We call it “uncollectible.” When I first got into legal marketing, I was amazed to learn that it takes many firms 6 to 9 months to collect on their bills. When I learned more about their billing practices, I was less amazed.

The least you can do is this ' streamline the process by which you measure and tabulate your billable hours. First, make sure your firm has a standardized process. Everyone should be doing things the same way, using the same codes, the same language, the same timelines and procedures. Especially if multiple attorneys are billing the same clients. It is deeply confusing and unprofessional to send out different invoices to the same client.

Second ' if you notice that one (or several) of your attorneys do a better job at getting paid on time, ask them what they're doing right and make everyone else do the same thing. For example, rather than waiting until the end of the month to enter their billings into the system, they may be doing it on a daily or weekly basis. If that's what's making the difference, get the rest of the firm on the ball.

Third, put your money where your money is. I really, really like, “You don't get paid until we get paid” programs. I know of more than one firm where paychecks are held until all billable hours have been entered for the month. One managing partner told me: “This isn't junior-high. It's the real world. If people don't think money is important, I respect that opinion enough to keep their money from them.”

The Medium You Can Do:
Measuring Proficiency

OK. Your bills are going out on time, they look clean and you've reduced your WIP to a reasonable 3 months. What's after that? How about measuring the time spent on different matters as a way to track how proficient your lawyers have become at various tasks?

Legal service is an incredibly complicated business. Any single piece of work can involve dozens of skills. But it is possible to reduce some of that complexity and derive meaningful data from every hour of work accomplished. For example, you could code each 10th of an hour to reflect work done in a particular industry, for a particular practice group, and in a particular type of legal work. Examples: 1 hour, health care industry, environmental group, research; 2 hours, higher education, labor group, contract negotiation. You get the picture. Much of this information is already in the equation, anyway, as practice group is hardwired into many firms' definitions of “who you are,” and industry is linked to client by D&B number. A little bit more effort here can yield lots more results.

If you began doing this for associates on day 1, you'd end up with a very complete picture of their professional capabilities. Most billing and/or conflict systems will allow you to pull up queries on this type of information as well. Which means that you'd be able to “back into” the data at the beginning of a case, asking for attorneys with “such and such” abilities with various industry, group and work history.

This type of data also allows for weighed billing rates based on a “sliding scale.” For example, lawyers with 1-1,000 hours of experience in “contract negotiation” bill that service at $100/hour. At 1,000-1,500 hours experience, the rate goes up to $125/hour, etc. This makes much more sense to clients than the “we made up numbers based on what we thought we could charge” method that most firms employ for their rates.

What about lawyers who have been lawyering for 30 years? Have them guestimate the percentage of time they've spent on various industries, types of work and practice areas and divide up their lifetime billables. It will be an estimate, but it will still get them into the picture. The point here is to start behaving like a business, rather than a bunch of super smart kids with advanced degrees and ugly lobbies.

The Most You Can Do:
The Data Cube

This is an advanced concept and involves stuff like statistics and math, so those of you with a low tolerance for pain should stop reading now and go back to your coffee and danish. A data cube is an analysis tool whereby you take one particular piece of information ' in this case, the billable hour ' and plug in all kinds of other data that “revolve” around that one, central core. Successful data cubing requires heavy-duty database software (I recommend Elite, even though they don't bribe me … yet … c'mon guys), a commitment to long-term marketing management and the ability to withstand Ozymandian levels of grumpiness.

“What is Havens talking about?” I get that a lot. OK. Bear with me. When you measure a billable hour, you know which lawyer billed it. By extension, you know what group they work in, what college and law school they went to, who recruited them, what office they work in, what their billable rate is, what their personal WIP is, what their receivable rate is, how many hours they spend on pro bono work, marketing work, training other attorneys, etc. You know how much square footage their office takes up and how much their secretary is paid. You also know what client the work was done for. And by extension, in what industry. You know what other firm may have shared the work. You know (hopefully) who referred the work in for that matter, if it was completed successfully, how much travel was involved, how much overhead was charged.

In short, you know all kinds of things about that matter, all of which can be traced back to that billable hour, or even that 1/10th of a billable hour. Now, with the right software and processes, you can begin to get a picture of which matters, lawyers, clients, industries, practices, groups, offices and behaviors are the most profitable.

Did that go by to quickly for you? I'll repeat it, so it sticks. The purpose of a data cube is to measure profitability. Because as soon as you have details about operating expenses and income, you have what you need to measure profit. And when you can measure profit, you can make decisions about which areas are growing and need support and which need work.

I still don't like the billable hour much. But if you're going to lug the thing around, you might as well get some use out if. Otherwise you're just taking the easy way out. And that's so unlike you.

Anyone familiar with this column, or my rantings in a variety of other locations (blatant plug for my blog here, http://legalmarketing.typepad.com/blog), knows that I'm not a huge fan of the billable hour. I think it drives a certain kind of “wrong think” about the value of working smart vs. working long. Law firm management folks also tend to use the billable hour as the one “uber number” to drive all other considerations ' including marketing ' aside. Like they say, when your only tool is a hammer, everything starts to look like a nail.

What surprises me even further about the billable hour, though, is how little its use is exploited as a marketing and business tool. All this time and effort are put into keeping track of lawyers' time in 10th of an hour increments … and then it is simply used for its lowest-common-denominator purpose: Billing. That's like spending $4,000 on an African Grey parrot, training it for 2 years to engage in complex conversation … and then eating it.

The Least You Can Do:
Clean And On-Time

I've spoken with lawyers at firms where they are still entering hours on hand-written time sheets and then having secretaries convert them into forms in Word or Excel, and then those documents are e-mailed to someone in the billing department who converts them into a billing program. Then the billing program spits out a form which is sent back up to the lawyer who checks it out, makes corrections by hand, sends the corrections back to the billing department, who enters them back into the billing program, prints out a (hopefully) final form and sends it back to the lawyer who then (eventually) sends it to the client.

In the retail world, we have a word for this kind of bill. We call it “uncollectible.” When I first got into legal marketing, I was amazed to learn that it takes many firms 6 to 9 months to collect on their bills. When I learned more about their billing practices, I was less amazed.

The least you can do is this ' streamline the process by which you measure and tabulate your billable hours. First, make sure your firm has a standardized process. Everyone should be doing things the same way, using the same codes, the same language, the same timelines and procedures. Especially if multiple attorneys are billing the same clients. It is deeply confusing and unprofessional to send out different invoices to the same client.

Second ' if you notice that one (or several) of your attorneys do a better job at getting paid on time, ask them what they're doing right and make everyone else do the same thing. For example, rather than waiting until the end of the month to enter their billings into the system, they may be doing it on a daily or weekly basis. If that's what's making the difference, get the rest of the firm on the ball.

Third, put your money where your money is. I really, really like, “You don't get paid until we get paid” programs. I know of more than one firm where paychecks are held until all billable hours have been entered for the month. One managing partner told me: “This isn't junior-high. It's the real world. If people don't think money is important, I respect that opinion enough to keep their money from them.”

The Medium You Can Do:
Measuring Proficiency

OK. Your bills are going out on time, they look clean and you've reduced your WIP to a reasonable 3 months. What's after that? How about measuring the time spent on different matters as a way to track how proficient your lawyers have become at various tasks?

Legal service is an incredibly complicated business. Any single piece of work can involve dozens of skills. But it is possible to reduce some of that complexity and derive meaningful data from every hour of work accomplished. For example, you could code each 10th of an hour to reflect work done in a particular industry, for a particular practice group, and in a particular type of legal work. Examples: 1 hour, health care industry, environmental group, research; 2 hours, higher education, labor group, contract negotiation. You get the picture. Much of this information is already in the equation, anyway, as practice group is hardwired into many firms' definitions of “who you are,” and industry is linked to client by D&B number. A little bit more effort here can yield lots more results.

If you began doing this for associates on day 1, you'd end up with a very complete picture of their professional capabilities. Most billing and/or conflict systems will allow you to pull up queries on this type of information as well. Which means that you'd be able to “back into” the data at the beginning of a case, asking for attorneys with “such and such” abilities with various industry, group and work history.

This type of data also allows for weighed billing rates based on a “sliding scale.” For example, lawyers with 1-1,000 hours of experience in “contract negotiation” bill that service at $100/hour. At 1,000-1,500 hours experience, the rate goes up to $125/hour, etc. This makes much more sense to clients than the “we made up numbers based on what we thought we could charge” method that most firms employ for their rates.

What about lawyers who have been lawyering for 30 years? Have them guestimate the percentage of time they've spent on various industries, types of work and practice areas and divide up their lifetime billables. It will be an estimate, but it will still get them into the picture. The point here is to start behaving like a business, rather than a bunch of super smart kids with advanced degrees and ugly lobbies.

The Most You Can Do:
The Data Cube

This is an advanced concept and involves stuff like statistics and math, so those of you with a low tolerance for pain should stop reading now and go back to your coffee and danish. A data cube is an analysis tool whereby you take one particular piece of information ' in this case, the billable hour ' and plug in all kinds of other data that “revolve” around that one, central core. Successful data cubing requires heavy-duty database software (I recommend Elite, even though they don't bribe me … yet … c'mon guys), a commitment to long-term marketing management and the ability to withstand Ozymandian levels of grumpiness.

“What is Havens talking about?” I get that a lot. OK. Bear with me. When you measure a billable hour, you know which lawyer billed it. By extension, you know what group they work in, what college and law school they went to, who recruited them, what office they work in, what their billable rate is, what their personal WIP is, what their receivable rate is, how many hours they spend on pro bono work, marketing work, training other attorneys, etc. You know how much square footage their office takes up and how much their secretary is paid. You also know what client the work was done for. And by extension, in what industry. You know what other firm may have shared the work. You know (hopefully) who referred the work in for that matter, if it was completed successfully, how much travel was involved, how much overhead was charged.

In short, you know all kinds of things about that matter, all of which can be traced back to that billable hour, or even that 1/10th of a billable hour. Now, with the right software and processes, you can begin to get a picture of which matters, lawyers, clients, industries, practices, groups, offices and behaviors are the most profitable.

Did that go by to quickly for you? I'll repeat it, so it sticks. The purpose of a data cube is to measure profitability. Because as soon as you have details about operating expenses and income, you have what you need to measure profit. And when you can measure profit, you can make decisions about which areas are growing and need support and which need work.

I still don't like the billable hour much. But if you're going to lug the thing around, you might as well get some use out if. Otherwise you're just taking the easy way out. And that's so unlike you.