Are you giving your clients the triple discount?
There are three types of discounts you may not know you’re routinely offering, and it’s probably not a great idea for either you or your clients.
Last week, I was talking about billing with a veteran lawyer and very savvy businessperson. We were discussing the experience of small firms, and he made an offhand remark about the triple discount most solo lawyers end up offering on top of the already generally lower hourly rates. The idea of offering a triple discount stood out to me, and I pushed him to describe what he meant. He quickly laid out the three discounts most solo and small-firm lawyers end up distributing.
1. The discount of omission: The first discount happens when lawyers don’t document their time properly. As lawyers juggle several tasks at once, it’s easy to spend 15 minutes reviewing a document that just came in and record the time as just checking e-mail. Without proper tracking, lawyers end up not billing time spent working on client files.
2. The discount of regret: The second discount happens lawyers review their bill and remove time from it. Did they really spend 2.3 hours reviewing that agreement? They must have left the clock running, they might say to themselves, so it’s better to mark it down as an hour and a half. Maybe it’s pride telling them they could have done the task faster or maybe they don’t trust their billing method, but it all amounts to unreported time spent on a client file.
3. The discount of concession: A poorly crafted invoice can seem arbitrary to clients, and many view a bill as an invitation to negotiate. Haggling with clients isn’t fun, and to get the bill paid and keep the relationship positive, a lawyer may discount a prepared invoice.
This really resonated with me, and it’s something I’ve experienced and thought hard about how to solve internally. The default solution for most lawyers is to simply accept the triple discount and set their hourly rate so that it remains profitable to work 10 hours, record nine, bill for eight, and only get paid for seven of them.
Most of us didn’t become lawyers to do bookkeeping, and many fall into the trap of thinking this is how the profession should operate. But in the end, just using a higher billing rate to offset the triple discount ends up hurting both clients and lawyers.
Here are a few tips and tricks I use and I’m happy to hear from others on how they’re solving this problem internally:
1. Time-tracking software is a must. Most practice management software has some internal time tracking built into it, but more advanced programs can help capture all of the time spent on a computer. Two options I’m familiar with are Chrometa and Time Doctor. Chrometa has some useful integration features with practice management software. But I found Time Doctor fits better into my workflow. Most software programs have a free trial period, so experiment and find what works best for you and your firm.
2. Review your time entries daily: Having confidence in how your track your time is important. If you’re using time-tracking software, you can get a number of graphical outputs that can help you quickly review things. Did you really spend 45 minutes this morning reading e-mails or was some of that time billable? It’s much easier to make that decision with confidence if you’re doing it on the same day.
3. Detailed entries: Just logging four hours to the Jones matter isn’t enough. While what you should write on your bill is an entirely separate issue, even tracking internally what you spend your time on gives you insight into how to use it more effectively and can help make you more comfortable in your billing.
The three discounts aren’t going anywhere as they’re part of billing at an hourly rate. You don’t need to bill your client for the 10 minutes you were thinking about their case while you were stuck in traffic and if you feel like you spent more time than was necessary on a given task, it’s OK to underreport it. But you should be making these decisions with the confidence a well-maintained time-tracking system can give you.
There is an excellent white paper from Clio on alternative billing structures. At my firm, we use a fixed fee for most of our solicitor work. The response I get from clients is very positive. In general, having a fee tied to the value we’re providing to the client instead of the time it took us to produce the work feels less arbitrary to clients.
Interestingly, when given a mixed bill with both hourly rates and fixed-fee work, it’s the hourly work that clients will dispute.
We can’t do all of our work on a fixed-fee basis, but the lesson is clear. Clients don’t want a triple discounted bill.
It’s generally not the price that makes a client upset as much as the arbitrary nature of the bill.
Monica Goyal is a lawyer and technology entrepreneur. She’s the founder of My Legal Briefcase and Simply Small Claims. You can follow her on twitter at @monicangoyal.
