Summary
Expect to learn about the historical shift from hourly billing to alternative fee arrangements in the legal industry, driven by client demand for price certainty and a focus on deliverables rather than solely on the time spent, offering a better way to budget and ensuring fair pricing for desired outcomes.
3 Key Takeaways from this Video
- History of hourly billing: In the legal industry, hourly billing became prevalent in the 1960s when lawyers saw it as a way to ensure they would be paid for their work. It has been the dominant model for many years.
- Client demand for price certainty: Over the past decade, clients have started to seek more price certainty in legal services. They recognize the variability in time spent and outcomes among different lawyers. As a result, alternative fee arrangements have emerged as clients demand pricing based on deliverables rather than just the inputs or time spent.
- Focus on deliverables: Alternative fee arrangements shift the focus from billing solely based on time spent (inputs) to pricing based on the end product or deliverable. Clients are more interested in what they will receive and the fair price for that outcome, rather than the number of hours spent on a particular project.
Transcript
0:08 So I'm a lawyer, I have a client come to me, they've never seen anything else other than bill by the hour. 0:18 And so I would tell them a little bit about the history and that before in the 1950s and 40s, there was no hourly billing in the legal industry. 0:27 If it existed, it wasn't really well known. And then the 60s came along and the lawyers felt like there was a missed profit opportunity. 0:35 So they went to an hourly model because they didn't want to be working and not get paid. And that's a model that is existed for years and years and years. 0:45 And I'd say in the last decade or so clients have started to demand more price certainty. They've recognized that there must be a better way from their perspective to be able to budget and they realize that every time one lawyer posts, six minutes worth of work, it's very different than another lawyer 1:03 and it may be different for that lawyer from time to time. So alternative fees have arisen and are being demanded by clients. 1:11 And what it primarily means is it's anything other than billing by the hour. So it's pricing based more on the deliverable than the inputs. 1:20 So the hourly model is really based solely on inputs, how long does it take for someone to do something, which is at the service providers end. Whereas alternative fee arrangements have much more of a client focus to them, more on the deliverable. 1:37 So you would look at what is the end product, what do you get and what is a fair price for getting that as opposed to how many tens of hours did you spend doing that project this particular time.