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We all hear stories about big-firm associates billing crazy numbers of hours. When I got out of law school back in 1987, the story was that big-firm lawyers billed a minimum of 1,800 hours per year. They made it sound as if billing that much resulted in a miserable existence for the lawyers. I got worried. Thankfully the small firm where I worked expected only 1,500 hours per year, but even that number was hard to hit.
Over the years, I’ve listened as big-firm horror stories have become scarier. The dreaded number crept up from 1,800 to 2,000 to 2,400. Recently, I overheard a conversation about someone billing 3,000 hours.
Are there really lawyers out there billing 3,000 hours? I’ve never done that. Maybe you have? 3,000 hours is 8.2 hours per day for 365 consecutive days. Does that happen? I’m sure it does, but it’s not what the normal lawyer is doing, day in and day out.
Are you getting the truth?
There’s reason to believe that billable hours numbers get exaggerated. Some law firm partners revel in telling tales of driving their associates to the brink. Some associates enjoy bragging about their productivity, or the abuse they claim to be suffering. Some lawyers simply use big numbers to express the exhaustion they’re feeling.
Don’t automatically trust the numbers you hear. Be skeptical. It’s not uncommon for a lawyer to hear someone else’s numbers and roll their eyes, knowing that they’re hearing exaggeration. It may be actually impossible to replicate what you’re hearing in your particular practice area. It’s essential to apply critical thinking skills when you hear other lawyers throwing around numbers. Besides, even if the story you’re hearing is accurate, it may have no relationship to what’s realistic in your practice setting.
There’s a huge gulf between what some lawyers say is happening and what’s really happening when it comes to billable hours. Don’t get sucked into the conversation–or the competition.
Only the firm bookkeeper really knows how many hours a lawyer is billing. And the number of hours billed isn’t the single determining factor when it comes to law firm profitability.
Hours billed is only half of the story
Billable hours, while an interesting measure, reveal only part of a law firm’s financial story. There’s more to the bottom line than a single number.
What matters with respect to billables is this: how many of those billed hours actually result in revenues collected by the law firm? Of course, it’s also essential to factor in the cost of those hours in payroll, etc. Profits matter.
A particular associate might get an “A” for effort in billing lots of hours, but the same lawyer might not get a passing grade when it comes to the revenues collected. What if they’re also drawing a big salary, costing the firm too much? Between write-downs, write-offs, discounts, non-payment, a high lawyer salary, benefits, and perks, it’s easy for the high biller in the firm to also be the least profitable. None of that is ever mentioned in those I-bill-more-than-humanly-possible pissing contests at the bar association party.
Many lawyers bill lots of hours. Fewer lawyers actually collect on those billings. The number of dollars collected matters far more than the number of hours billed. Nobody cares about the time you spent, the hours you billed, or the effort you expended. The bottom line is the bottom line. When all is said and done, it’s the money remaining in the law firm bank account that really matters when it comes to billing clients.
Big clients vs little clients
I have little idea about what goes on in many big firms. They each have their own culture, systems, and business model. Each large firm tracks hours, incentivizes its lawyers and accounts for billable and non-billable time in their own way.
When I hear reports of big billable-hours numbers I don’t know whether those numbers include non-billable time, pro bono work, firm hours, etc. The mega-law firms work in a world apart from most of us, and their billing practices aren’t particularly relevant to what we’re doing. It’s important to remember that big firms are different from other firms when we hear their billing stories. They exist in a universe that is different and distinct from the world inhabited by most small and medium-sized law firms.
I have a friend working for a large firm. He has worked on the same client’s matter for two years. He arrives at the office in the morning and starts the clock. He eats lunch at his desk, still working, the clock still running, and he stays focused on the matter until he leaves for the day. His time–all of his time–for the day, the month, the year, is billed to his client. His days are nearly entirely billable.
Most of the rest of us are working in totally different circumstances.
We show up in the morning with an agenda and we bill the client we planned to bill. But within minutes, the day changes–the phone rings, or a client shows up without an appointment, or an email spins off an emergency–and suddenly the day we’re living bears no resemblance to the day we had planned.
The shifting agendas, priorities, and tasks require us to keep switching our billing from one client to another. That often involves getting back up to speed, opening different files, clearing our heads, and focusing on something different. Billable time is lost as we transition from one matter to another. Our ability to log hours to our clients is diminished when we’re constantly required to shift our attention from issue to issue.
But even when we understand the challenges faced by lawyers in smaller firms, we still freak out when we compare the hours being billed by our associates to the hours being billed in the big-law-firm stories we hear at the bar luncheon.
We can’t stop ourselves from complaining
We get agitated. We complain about our associates and their billing habits. It’s easy to convince ourselves that our associates are lazy.
I hear lots of complaints from lawyers who have hired associates. They complain about the number of hours they’re getting from their young lawyers. They aren’t happy.
Not every lawyer complains about their associates, because not every lawyer has an associate. But, complaining about associates (and paralegals) and their billables is universal among those of us who have ever been in that position. Most of us aren’t happy with the productivity of our lawyers, regardless of how many hours they bill. I’ve heard complaints from lawyers getting 40 hours a month, 90 hours, 120 hours, and 150 hours. There’s a lot of complaining, and it’s clearly not related to any particular objective standard of what an associate ‘should’ be billing. I think we’re too easily influenced by the big-firm stories. Our associates never perform like we believe the big-firm associates are performing.
Even if we’re fortunate and get consistently great numbers from our associates, that’s not enough to make a law firm profitable. Solving the billable hours ‘problem’ simply isn’t the key to a financially healthy firm.
Emphasizing billables doesn’t make a sick law firm healthy
Having associates bill a substantial number of hours won’t help if you’ve got other issues. For instance, if your hourly rate is too low or your associate compensation is too high, it won’t matter how many hours they’re billing. If your business model is flawed, you’re going to have trouble.
The most common diagnosis I make when asked to examine a firm with low-billing associates is simple: the law firm has too few clients and too many associates. The associates aren’t billing because there isn’t enough work for them to bill. That’s a marketing problem, not an associate management/billing problem.
Of course, some firms have plenty of work and still aren’t getting what they perceive as satisfactory billable hours from their associates. Sometimes that upset is warranted. Other times it’s a case of unrealistic expectations.
It’s helpful to know what you can reasonably expect from an associate so you aren’t banging your head against the wall in frustration all the time.
A realistic billable hours minimum
What’s realistic? What should you expect from an associate?
I’ve been studying this issue, and I’ve come up with a minimum associate billable hours expectation.
I think, in a small-firm retail practice involving lots of clients getting billed each month, that you should expect a minimum of 100 hours per month (annualized) in billable work. When I say 100, I mean 100 after all of the craziness that happens to the hours, like write-downs, discounts, adjustments, non-payment, etc. You should expect a bill to go out for a minimum of 100 hours and be returned with payment.
Are some firms doing better than 100? Yes, some are, but there are quite a few doing worse. Would I be happy with 100 hours personally? Probably not, but I’m pretty much unhappy with everything all the time. I enjoy grousing.
I think you can use 100 hours to give yourself a sense of whether your system is acceptable. If you’re below 100, then you need to make some quick changes. If you’re at, or above, 100 per month, then you can breathe a sigh of relief, stop complaining, and start figuring out how to improve on something that is basically working.
Time for some math
It’s important to see the larger picture beyond the 100-hour minimum. What will the associate cost? I have long advocated paying the associate about twenty percent of their revenues, if they aren’t involved in generating new clients for the firm.
Let’s drill down for a moment on the 100-hour minimum. Assume the associate is billing at $250 per hour (clearly an important number in this discussion) and you’re collecting $25,000 per month. You’ll recall that my minimum includes the write-downs, write-offs, uncollected, etc. That 100 is a collected number of hours.
You’re likely profitable at 100 billable hours if you pay the associate $5,000 in wages, plus benefits and payroll taxes of about $1,500, for a total cost of about $6,500.
What if the associate isn’t hitting the right numbers? Make the compensation variable. When the associate bills more, they earn more–and vice versa.
Take note that I’m not calculating in the cost of the support staff for the associate. If you’re going to provide the associate with some portion of a staff member then you need to factor that into the payroll figure above. In the technologically advanced world in which we live, it’s not likely that your associate needs much, if any, staff support.
Your business model and your ability to make those numbers actually happen–with great marketing, management, and technology–determine profitability. Focus on the bigger picture without getting overly bogged down in the hours billed by a particular associate during a particular month.
Look at the whole equation to find the right number
There are lots of reasons why small-firm associates bill fewer hours than their big-firm counterparts. We need to accept that the gross number of hours may be lower. But that doesn’t necessarily mean profits must also be lower. It’s the overall business model that drives profitability. Let your business model drive you. Don’t let the chatter from other firms, especially when it’s all about one narrow measurement, cause you to lose focus.
Build a healthy system. Feed it with clients attracted by well-articulated stories being told by you, your clients, and your referral sources. Help your team stay focused on the right things with a consistent approach to communication. Give your people the best tools to maximize their effectiveness. Understand that billable hours are just one piece of a much larger puzzle. Billables matter, but they’re not worth the time, energy, jealousy, and distraction they cause when they’re the hot topic at the lawyer lunch. Stay focused on the larger issues, and the billable hours will fall into place.
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