John Chisholm is the director of John Chisholm Consulting, a member of ALPMA and a veteran of the Australian legal field, with 25 years of experience working within the traditional law model as a legal partner, executive partner and CEO.
Mr Chisholm has seen and experienced firsthand the changes sweeping through law as client demands shift from “billable time increments/hours” to “results-based/value billing”.
Mr Chisholm welcomes the move towards results-based/value billing, believing it is a step in the right direction.
“I believed our profession sold our time. And we sold it in six-minute increments. After 25 years, I realised our clients actually don’t buy our time. What clients buy from lawyers are things like outcomes, results, peace of mind – they buy our intellectual capital,” explained Mr Chisholm.
Billable Hours in Drag Are Not the Answer for Law Firms Struggling to Transform Fee Structures
Mr Chisholm has noted that as more and more legal firms transition towards value-based billing, many are unsure of how to go-about implementing & integrating this new fee structure successfully. If these firms don’t get it right, their attempts at innovation and progress could backfire, damaging their reputation and weakening their client base.
For some law firms, the 2 biggest hurdles yet to overcome are:
1) Their inexperience with such new billing methods
2) Aligning their understanding of what value based billing actually is with client expectations.
What Not to Do When Making the Switch to Value-Based Billing
Mr Chisholm points out that some of those legal firms who have introduced value-based billing are not giving their prospective clients the full-story when it comes to their fees.
One partner Mr Chisholm spoke to described how their law firm had recently added value-based billing options for clients (also known as “fixed fees”). But, even though their business website hollers loudly, proclaiming fixed fees, these fees are not as concrete as they would appear from first glance.
If You Offer Fixed Fees, They Must Remain Fixed!
The unnamed law firm in question arrives at its fixed fees through a lot of estimation and guess-work. Their fixed-fees are based on the seniority and combination of lawyers which the firm foresees will work on the client’s case and an estimation of how many hours each lawyer will need to be allocated to complete the work for the client.
This is exactly where problems arise as the fixed fee guarantee becomes null-and-void as the firm reserves the right to change its billing structure if it turns out their estimations were off.
“Sometimes, because we don’t really know what is going to happen on a matter we can only give them a fixed fee for a limited amount of work we are going to do. If we finish up spending more time than we anticipated, then we reserve the right to change the fixed fee.”
Mr Chisholm warns firms not to go down this path as it is simply time-based billing under a new name.
“They are still basing their fixed fees on the time they anticipate spending on something and, unless you manufacture time, no one can accurately predict how much time they are going to spend in the future – certainly not to within six minutes or even an hour, or maybe even a day. Such a fixed fee is solely based on the traditional law firm model still leveraging people x time x hourly rates.