Law firms move away from billable hours

As more legal firms move away from billable hours towards negotiated pricing models, cost efficiency and streamlined document management processes are tantamount to critical business functions.
Law student sat at a library desk considering whether he should charge by the hour


Do billable hours still exist in law?

    In short, yes, however, clients now, more often than not, insist on an initial quote so that the responsibility lies with the legal firm to maintain low costs.

    For decades, billable hours was the traditional pricing model for most law firms, but the Great Recession in the early 2000s forced many legal organisations to find an alternative pricing model in order to remain competitive and retain clients in an increasingly cost-sensitive economy.

    Although the term “billable hour” still exists, the underlying concept is no longer the same. Clients now demand agreements that determine the budget up front, putting responsibility squarely on the legal firm to control costs in order to maintain profits.

    Gone is the traditional approach that allowed firms to record time and pass the cost of billable hours on to the client. The pressure is on law firms to accurately forecast profitability and to price and negotiate with clients accordingly. This change in approach has even resulted in the emergence of a relatively new profession in the legal industry: senior pricing executives.

    A new paradigm

      Though the concept of a senior pricing executive is relatively new to legal firms, it has become an established function within many professional services institutions and business consulting firms. The responsibilities of these executives are often two-fold: serve as the engagement lead and frontline negotiator on new business, and work collaboratively with client-facing partners to understand the forces and inefficiencies that can impact profitability.

      Document-related activities are changing as well. For example, clients are growing increasingly resistant to invoices for printed materials, especially if these documents were merely looked at and then recycled.

      Yet law firms have a lot to lose if they don’t get it right. One estimate suggests firms lose up to £12 per day per lawyer in unrecovered costs such as these. For a firm with 50 staff, that’s nearly £160,000 per year. In Conscious’ top 200 UK law firms, some of which have 150-2,000 members of staff – the unbilled costs could be staggering.

      A better solution

        For organisations making the shift to negotiated pricing models, especially related to document management, Nuance legal document solutions are an optimal means to create cost efficiency and preserve profitability. Some of the cost-saving benefits Nuance solutions can deliver include:

        • Improved workflowsYou can optimise legal workflows simplifying complex tasks and making life easier for your mobile workforce. For example, a centralised print, capture and cost recovery system reduces IT spend while providing a single view into cost recovery opportunities.
        • Expense management and trackingWhether your clients are on billable hours or negotiated pricing, Nuance seamlessly and accurately tracks all client expenses, exposing your true costs. You have the detailed insight required to control expenses and optimise profits with efficiency.
        • System consolidation: Separate cost recovery and document workflow solutions erode productivity, erase profitability and cost more to maintain. Nuance’s single platform blends these critical functions to consolidate your systems and centralise administration.
        • Intuitive solutions for maximum productivity: Nuance solutions offer a consistent user interface that encourages user adoption, helps enforce the application of the firm’s policies and enhances productivity.

        Stradley Ronon, a leading law firm, recently reduced its annual costs with Nuance cost recovery and expense management solutions. The firm successfully consolidated too many decentralised scanning and cost recovery solutions and gained a single solution capable of providing cost recovery, scan routeing, print management more. As a result, Stradley Ronon significantly reduced annual support costs and increased recovery – all for a stronger bottom line.

        Gain a new advantage

          As more legal firms shift from billable hours to negotiated pricing models, executives charged with maintaining profitability will focus on ways to reduce expenses and integrate cost efficiency throughout the legal process including document workflow management. Nuance has the solutions to help.

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          About Sharon Varalli

          Sharon Varalli is the Senior Industry Marketing Manager for Nuance Document Imaging. Before joining Nuance Communications, Sharon held a number of marketing and communications positions at Xerox Corporation, Rochester General Hospital and Kodak. Most recently, she was the Healthcare and Higher Education Industry Marketing Manager at Xerox Corporation. Sharon was responsible for developing and executing go-to-market strategies for multiple industries including sales support materials, client facing collateral, social media marketing, customer, partner and team relationship building, and strategic event planning.