For many decades, lawyers had what amounted to a blank check in terms of the hours they could spend on a matter. As long as the total wasn't egregiously out of the perceived normal range, they could say, "That's how long it takes to do a great job for you," and the client would accede and pay the bill. This largesse also extended to green lawyers just learning their craft. The limits on the time they could charge against a matter were a relative thing, i.e., relative to how long it would take an experienced lawyer to produce the same work product. It was understood that green lawyers would require more time to do almost anything.
Obviously, that's changed. Due to the Internet generally, and companies and software that analyze legal bills specifically, clients are much better informed about performance norms. Most now require project/matter budgets, and many refuse to pay for inexperienced lawyers at all, believing that the task and cost of developing young lawyers' skills properly lies with the firms who employ them.
Law firms saw clients’ change in mindset as early as 2008, yet six years later they’re still dancing around the edges of the type of change that clients want and demand, and that will assure a healthy future for the firms.
Amid all that’s written now about more sophisticated project/matter management, missing is a simple budgeting technique that would serve clients’ needs for cost-predictability: what I’ll call “unit budgets.”
When assigning a task or component of a matter to a lawyer on your team, you give them a budget. “Your time budget to produce X outcome that meets our high standards is 10 hours.” That’s it. That’s all you’ll pay them, because that’s all the client will pay you. They should track actual time vs. budget. If they have to spend more time than budgeted to produce the prescribed outcome and honor standards, that’s the cost of getting better, which they, or the firm, must eat. The excess time doesn't count against their annual billable-hour target. Education and experience aren’t free (although clients’ mystifying tolerance for funding young lawyers’ learning curve has made it seem like it was for a long time).
Lawyers should learn (by experience) budget sensitivity from Day One of their careers. Supervising attorneys must get better at estimating the time it takes to produce sub-outcomes. Rainmakers must learn how to sell value and build in necessary buffers to the task- and overall budgets. You don’t want to have to go back to your client for a budget exception for everything that arises.
When you measure a variance against a task budget that exceeds predetermined tolerances (and the pricing buffer), management must examine it to determine whether it’s caused by a) poor estimating by a supervising lawyer, or b) inefficient execution by the lawyer performing the task. That’s the only way they’ll know what they have to fix or improve to make future budgets more reliable and shrink variances, and the only way to make it fair for subordinates who must live with task budgets assigned by superiors.
Firms would be well served to consult with their clients in the construction industry and other businesses who must prepare fixed bids or budgets for complex endeavors subject to the inevitable unforeseeable factors.
It's said that buyers bear quality risks, and sellers bear cost risks. The legal service economy has long placed both risks on clients, but no more.
To learn how to collaborate with your client to devise a budget that has both parties invested equitably, and shares risk fairly, take the RainmakerVT course, A Collaborative Approach to Pricing: Share the Estimating Risk with Clients (and make competitors miserable).
Rainmakers: Learn how The Cost of Doing Nothing is the key to value pricing, and positioning your firm's work as a return on investment instead of a cost.