Summary
Expect to learn that billing realization rates serve as a valuable tool for evaluating the effectiveness of a legal practice, measuring the percentage of billed fees compared to the cost of time spent, and monitoring progress in improving systems, resource allocation, and project profitability while considering individual and project-specific variations.
3 Key Takeaways from this Video
- Understanding billing realization rates: Billing realization rates reflect the percentage of billed fees compared to the cost of time spent and provide a way to measure the effectiveness of a legal practice. It is essential to grasp the concept and calculate these rates accurately.
- Continuous improvement: Increasing billing realization rates should be a target for law firms as it signifies improvements in systems, operations, and resource allocation. By optimizing workflows and pricing strategies, firms can enhance efficiency and productivity, enabling them to accomplish the same work in less time.
- Individual and project analysis: Analyzing billing realization rates at the individual and project levels unveils valuable insights. The rates can vary significantly between individuals and project types, indicating variations in skill sets, system utilization, and profitability. By identifying these patterns, firms can align resource allocation, business development efforts, and practice areas for optimal outcomes.
Transcript
0:08 Billing realization rates can be a really important tool in assessing your business, your legal practice and so maybe start by defining what billing realization rate is.
0:23 Billing realization rate is on all the files that you bill, the what you bill compared to what your time cost is.
0:35 So as a simple example, if you bill your time cost, so all the hours that were spent, all the hourly rates, you add them up and that's what your fees billed equal. That's 100%.
0:47 If you discount it because you think your time's not very good, it would be less than 100%. And if you premium it, it would be more than 100%.
0:58 So that's what billing realization rate is. And in the regular hourly billing world, it's going to be somewhere usually less than 100% because of the discounting that naturally goes on.
1:11 And in fact, billing realization rate in the U.S., according to the Clio 2022 trend report was 84%. So on average, a lot of discounting going on.
1:24 So billing realization rate, if you continue to record time and you look at that, I think one of your targets would be to keep increasing billing realization rates on the basis that you're improving your systems constantly.
1:36 You're getting the same work done in last time because you have a pricing system that encourages great operation systems or product development systems, if you will.
1:47 You can look at billing realization rates a number of different ways. You can look at it month to month and look at how it varies from month to month.
1:57 You can look at it right over quarterly periods or semi-annual periods. You can also look at it by the individual.
2:05 And you'll likely find that there's a tremendous range in billing realization rates. You'll find that even in one firm that the billing realization rates might fluctuate by individuals on average from 80% to maybe 120%.
2:21 They can be quite a range. And it really depends on whether the individuals are set up for success doing work that they regularly to do with good systems and with good resource allocation.
2:32 And also really important to look at it by project type. So certain projects, it will be different for each firm.
2:39 We'll tend to have higher billing realization rates. Well, that also should start you thinking about how do you spend your business development dollars and time.
2:49 What type of work are you trying to generate? And so billing realization rate has a lot of spillover effect, and so a lot of things to think about.