Your site is realy very interesting!

Your site is realy very interesting!

Thank you, Mitch, for taking the time to share so many great ideas with me and visitors to this site.  You sound like a lawyer who really means it when he says the goal is to give the client full value.
<p>I agree that many clients know a lot more than lawyers want to admit, but I’m concerned about the ones who have no idea whether they are being snookered, and those for whom almost any payment for legal services represents a great financial strain.
<p>Here in NYS, a lawyer recently took thousands of dollars (often $10,000 or more) each from over 10,000 clients, who were already in dire financial straits but hoping to avoid bankruptcy.  The clients had no idea that virtually the only service being done for them was sending form letters to creditors suggesting the client would file for bankruptcy if debt levels were not greatly reduced.  I couldn’t even get bar counsel to open an investigation.  Of course, I don’t believe many lawyers are as distardly as the one in question — but, I do believe that many clients have virtually no way to tell whether they are getting value; and they certainly don’t know in advance.

Thank you, Mitch, for taking the time to share so many great ideas with me and visitors to this site.  You sound like a lawyer who really means it when he says the goal is to give the client full value.
<p>I agree that many clients know a lot more than lawyers want to admit, but I’m concerned about the ones who have no idea whether they are being snookered, and those for whom almost any payment for legal services represents a great financial strain.
<p>Here in NYS, a lawyer recently took thousands of dollars (often $10,000 or more) each from over 10,000 clients, who were already in dire financial straits but hoping to avoid bankruptcy.  The clients had no idea that virtually the only service being done for them was sending form letters to creditors suggesting the client would file for bankruptcy if debt levels were not greatly reduced.  I couldn’t even get bar counsel to open an investigation.  Of course, I don’t believe many lawyers are as distardly as the one in question — but, I do believe that many clients have virtually no way to tell whether they are getting value; and they certainly don’t know in advance.

I was just introduced to your blawg by a colleague who is also interested in the fee-oriented concepts raised in your post on value billing. Almost two years ago, I left my partner position with a relatively large intellectual property boutique largely because I believed business needed to be conducted differently. My focus on billing has always been on whether THE CLIENT perceives value in the service for the fee requested. Your post and the comments seem to me to be overly focused on the attorney’s perceptions of value and the rationale for “arguing” that the services are of the billed value. In my experience, clients know a lot more about value than we (attorneys) think. For example, every client knows the value of the dollar figure at the bottom of the bill. They also know why they hired you and what they hoped to accomplish by hiring you. Finally, they also know how much money they have to devote to attorney services. All this knowledge adds up to a pretty good barometer for “value” regardless of the billing mechanism.

As for me, I still usually bill for my services by the hour and consider the amount of time spent to be a good measure of the value. The time-is-my-only-asset rationale supports this type of billing so long as there is an efficient market force (or constraint depending on your idealogical bent) to keep me from letting the meter run too long or dragging my feet on something while the meter is running. Before you lump me in with the rest of the hourly billers consider the twist that I add. If a client ever believes that my bill is unreasonable, I ask that pay only what’s reasonable. This is an enforceable contract term in the engagement letter with every client of my firm. This term of engagement is the market force that keeps me motivated to get the job done as quickly and efficiently as possible. It also gives all the power to the client to judge value, dramatically opens lines of communication about value, planning, budgeting, and satisfaction. My clients are no longer scared to talk to me for fear of the meter spinning too fast.

I also bill some tasks at a flat rate. My rationale for my flat rate tasks and the fees charged is two-fold. First, variations in the precise amount of time spent on relatively quick, repeatable tasks are hard to collect on my end and clients tend to be irritated by numerous small time entries. I guess this first rationale essentially boils down to it being inefficient on my end to record and report the time for some tasks and inefficient on the client’s end to review and judge the value of those same hypothetical time entries. Second, there are some tasks for which I charge for my accumulated experience or my special access to certain administrative bodies (I am a registered patent attorney who practices before the USPTO on patent application matters). This rationale is akin, I supposed, to the return on my investment theory. Whenever I have had a client with a “high volume” of certain flat rate tasks, I have offered to cut the price due to a specifically applicable economy of scale for that client. In the end, however, my flat rate tasks are subject to the same term of engagement that lets clients have the ultimate say over the value of my services.

One last point. Whenever I send a bill or try to determine a price for a flat rate task, I always pretend that the client knows everything about what I did (every detail). Then I ask, would the client believe the fee on my invoice for that activity to be fair? If I answer no, I adjust the fee until the answer is yes.

I’m glad that my buddy turned me on to your site. I’ll check in periodically.

I was just introduced to your blawg by a colleague who is also interested in the fee-oriented concepts raised in your post on value billing. Almost two years ago, I left my partner position with a relatively large intellectual property boutique largely because I believed business needed to be conducted differently. My focus on billing has always been on whether THE CLIENT perceives value in the service for the fee requested. Your post and the comments seem to me to be overly focused on the attorney’s perceptions of value and the rationale for “arguing” that the services are of the billed value. In my experience, clients know a lot more about value than we (attorneys) think. For example, every client knows the value of the dollar figure at the bottom of the bill. They also know why they hired you and what they hoped to accomplish by hiring you. Finally, they also know how much money they have to devote to attorney services. All this knowledge adds up to a pretty good barometer for “value” regardless of the billing mechanism.

As for me, I still usually bill for my services by the hour and consider the amount of time spent to be a good measure of the value. The time-is-my-only-asset rationale supports this type of billing so long as there is an efficient market force (or constraint depending on your idealogical bent) to keep me from letting the meter run too long or dragging my feet on something while the meter is running. Before you lump me in with the rest of the hourly billers consider the twist that I add. If a client ever believes that my bill is unreasonable, I ask that pay only what’s reasonable. This is an enforceable contract term in the engagement letter with every client of my firm. This term of engagement is the market force that keeps me motivated to get the job done as quickly and efficiently as possible. It also gives all the power to the client to judge value, dramatically opens lines of communication about value, planning, budgeting, and satisfaction. My clients are no longer scared to talk to me for fear of the meter spinning too fast.

I also bill some tasks at a flat rate. My rationale for my flat rate tasks and the fees charged is two-fold. First, variations in the precise amount of time spent on relatively quick, repeatable tasks are hard to collect on my end and clients tend to be irritated by numerous small time entries. I guess this first rationale essentially boils down to it being inefficient on my end to record and report the time for some tasks and inefficient on the client’s end to review and judge the value of those same hypothetical time entries. Second, there are some tasks for which I charge for my accumulated experience or my special access to certain administrative bodies (I am a registered patent attorney who practices before the USPTO on patent application matters). This rationale is akin, I supposed, to the return on my investment theory. Whenever I have had a client with a “high volume” of certain flat rate tasks, I have offered to cut the price due to a specifically applicable economy of scale for that client. In the end, however, my flat rate tasks are subject to the same term of engagement that lets clients have the ultimate say over the value of my services.

One last point. Whenever I send a bill or try to determine a price for a flat rate task, I always pretend that the client knows everything about what I did (every detail). Then I ask, would the client believe the fee on my invoice for that activity to be fair? If I answer no, I adjust the fee until the answer is yes.

I’m glad that my buddy turned me on to your site. I’ll check in periodically.

Editor:  Dave, Thanks for giving us your perspective. This topic is clearly going to call for a lot more thinking and writing by me. Here are some quick reactions to your points, which are also offered with respect and an open mind:

The “reality” is that technological advances and efficiencies are expected — in our economy and in basic economic theory — to bring prices down. So is an oversupply of service providers. Your approach seems to be stripping the client of both normal market benefits and fiduciary protection.
An attorney’s hourly rate is expected to take into account the attorney’s expertise and investment in human and machine capital. The attorney states his or her hourly fee, explains it if the client wonders why it is so high, and then (after some negotiation, perhaps) either enters into an agreement with the client or doesn’t.
Your estate planning example seems to me to show the perils in your approach from the clients’ perspective:

Talking about the attorney’s risk but then not trying to measure the risk when setting a fee seems a sure way to overcharge. The attorney may have more risk when dealing with a $100,000,000 estate plan than with a $100,000 estate plan, but it is surely not one thousand times more risk.
Also, the attorney would certainly spend far more hours working on the $100 million dollar estate than the $100,000 bank account, when setting up an estate plan. Those extra hours — multiplied by an hourly fee that represents the attorney’s expertise and efficiency — compensate for the “extra” value added by the attorney.

  As with contingency fees, percentage billing is only fair to clients if the client is fully informed about just what the lawyer is bringing to the table to “earn” the percentage. It’s bad enough that personal injury lawyers basically demand to be made a partner in every client’s injury claim. To force this upon ever-more types of clients, without fully informing the client, seems to me to be putting the lawyer’s financial interests far above the clients’ interests.
The LLC example is also worrisome to me. If $150 seems too small a return for your time, perhaps you need to adjust your hourly rate to reflect your perceived self-evaluation. That allows the client to determine your value in a manner that the client can grasp and deal with. As a fiduciary, you need to let the client know just how much time you’ll be spending — explain to the client why less than an hour of work is “worth” $1500.  
Justifying a percentage fee or a flat fee by saying “the client has certainty” can often be simply a rationalization — so does a life-without-parole sentence, rather than 25-to-life. It begs the question as to whether the amount is reasonable in the circumstances. What would a likely range in fee estimate be, if billed by the hour, for your hypothetical LLC client? One hour (likely) to maybe three hours (if there are unseen complications)? Even at $300 per hour, the fee would certainly be far below the $1500 “certain” fee. Trying to make certainty sound like a wonderful value or bargain for the client seems like lawyer-speak to me — and probably would to most clients.
  A good rule of thumb for a fiduciary (or any service-provider): if you’re embarrassed to tell your client/customer how little you have to do to accomplish the task, when compared to the fee, your fee is too high.  That’s why many informed consumers have rebelled against the customary real estate agent percentage when selling a home.  It’s also why a lot of probate courts have questioned or put a dollar limit on probate fees based on the overall value of the estate. 
Two final points: As discussed in this post, the special privileges that come with our professional license presume:

1)That since clients cannot adequately evaluate the quality of the service, they must trust those they consult; and 2) That the client’s trust presupposes that the practitioner’s self-interest is overbalanced by devotion to serving both the client’s interest and the public good.

As agent of reality, and consumer advocate, I must often tell my colleagues two things they don’t want to hear:

(1) in general, attorney services are worth a whole lot less (add a lot less value) now that consumers can read and write and technology makes it possible to provide legal services far more quickly and efficiently (or through self-help); and
(2) there are over one million attorneys in the USA and they are all looking to make a buck.
To think that those factors can be avoided by coming up with new ways to “sell” and “price” the product or to push back market forces and the tide of history seems to me to foolish and unprofessional.

Editor:  Dave, Thanks for giving us your perspective. This topic is clearly going to call for a lot more thinking and writing by me. Here are some quick reactions to your points, which are also offered with respect and an open mind:

The “reality” is that technological advances and efficiencies are expected — in our economy and in basic economic theory — to bring prices down. So is an oversupply of service providers. Your approach seems to be stripping the client of both normal market benefits and fiduciary protection.
An attorney’s hourly rate is expected to take into account the attorney’s expertise and investment in human and machine capital. The attorney states his or her hourly fee, explains it if the client wonders why it is so high, and then (after some negotiation, perhaps) either enters into an agreement with the client or doesn’t.
Your estate planning example seems to me to show the perils in your approach from the clients’ perspective:

Talking about the attorney’s risk but then not trying to measure the risk when setting a fee seems a sure way to overcharge. The attorney may have more risk when dealing with a $100,000,000 estate plan than with a $100,000 estate plan, but it is surely not one thousand times more risk.
Also, the attorney would certainly spend far more hours working on the $100 million dollar estate than the $100,000 bank account, when setting up an estate plan. Those extra hours — multiplied by an hourly fee that represents the attorney’s expertise and efficiency — compensate for the “extra” value added by the attorney.

  As with contingency fees, percentage billing is only fair to clients if the client is fully informed about just what the lawyer is bringing to the table to “earn” the percentage. It’s bad enough that personal injury lawyers basically demand to be made a partner in every client’s injury claim. To force this upon ever-more types of clients, without fully informing the client, seems to me to be putting the lawyer’s financial interests far above the clients’ interests.
The LLC example is also worrisome to me. If $150 seems too small a return for your time, perhaps you need to adjust your hourly rate to reflect your perceived self-evaluation. That allows the client to determine your value in a manner that the client can grasp and deal with. As a fiduciary, you need to let the client know just how much time you’ll be spending — explain to the client why less than an hour of work is “worth” $1500.  
Justifying a percentage fee or a flat fee by saying “the client has certainty” can often be simply a rationalization — so does a life-without-parole sentence, rather than 25-to-life. It begs the question as to whether the amount is reasonable in the circumstances. What would a likely range in fee estimate be, if billed by the hour, for your hypothetical LLC client? One hour (likely) to maybe three hours (if there are unseen complications)? Even at $300 per hour, the fee would certainly be far below the $1500 “certain” fee. Trying to make certainty sound like a wonderful value or bargain for the client seems like lawyer-speak to me — and probably would to most clients.
  A good rule of thumb for a fiduciary (or any service-provider): if you’re embarrassed to tell your client/customer how little you have to do to accomplish the task, when compared to the fee, your fee is too high.  That’s why many informed consumers have rebelled against the customary real estate agent percentage when selling a home.  It’s also why a lot of probate courts have questioned or put a dollar limit on probate fees based on the overall value of the estate. 
Two final points: As discussed in this post, the special privileges that come with our professional license presume:

1)That since clients cannot adequately evaluate the quality of the service, they must trust those they consult; and 2) That the client’s trust presupposes that the practitioner’s self-interest is overbalanced by devotion to serving both the client’s interest and the public good.

As agent of reality, and consumer advocate, I must often tell my colleagues two things they don’t want to hear:

(1) in general, attorney services are worth a whole lot less (add a lot less value) now that consumers can read and write and technology makes it possible to provide legal services far more quickly and efficiently (or through self-help); and
(2) there are over one million attorneys in the USA and they are all looking to make a buck.
To think that those factors can be avoided by coming up with new ways to “sell” and “price” the product or to push back market forces and the tide of history seems to me to foolish and unprofessional.

David, I respectfully disagree with your analysis of “value billing” (or flat-rate billing, or whatever you want to call it). First, your analysis assumes that the billable hour should be the base for any comparison (i.e., value billing is fair only if the charge is less than the comparable billable hour). This assumes that the billable hour is a fair method in the first place.

Lawyers are not only charging for their time, they are also charging to reimburse them for undertaking a certain amount of risk and to obtain the value of their expertise. Say that I have studied LLCs exhaustively and, due to technological efficiencies, I can set up an LLC for a client in less than an hour. What should I charge for that service? In other words, what has the client obtained from me and how should I be compensated? The client not only received 45 minutes of my time–he or she also reaped the rewards of many hours of research and preparation that enabled me to prepare an LLC in such a short amount of time. If my hourly billing rate is $200, should I charge the client $150 for my service? That amount seems to undervalue what the client received–a legal entity that I have basically warranted will be upheld if challenged at a later time. How is that only worth $150?

On another note, consider percentage billing. Many financial advisors charge their fees as a percentage of the total assets under management. Why not charge estate planning clients or transactional clients the same way? This brings a dose of reality to the situation. After all, the monetary value of an estate plan to a client with $100 million in the bank is much different than the monetary value of an estate plan to a client with $100,000 in the bank. The lawyer’s risk is greater as well. Why shouldn’t the fee reflect this difference? The same goes for a business transaction. Why shouldn’t the lawyer’s fee be a percentage of the deal?

These types of fees give certainty to clients–something which they cannot get in billable hours scenarios. The client knows in advance that it will cost, say $1500 for an LLC or 0.5 percent of the client’s total assets to obtain the value of your services.

David, I respectfully disagree with your analysis of “value billing” (or flat-rate billing, or whatever you want to call it). First, your analysis assumes that the billable hour should be the base for any comparison (i.e., value billing is fair only if the charge is less than the comparable billable hour). This assumes that the billable hour is a fair method in the first place.

Lawyers are not only charging for their time, they are also charging to reimburse them for undertaking a certain amount of risk and to obtain the value of their expertise. Say that I have studied LLCs exhaustively and, due to technological efficiencies, I can set up an LLC for a client in less than an hour. What should I charge for that service? In other words, what has the client obtained from me and how should I be compensated? The client not only received 45 minutes of my time–he or she also reaped the rewards of many hours of research and preparation that enabled me to prepare an LLC in such a short amount of time. If my hourly billing rate is $200, should I charge the client $150 for my service? That amount seems to undervalue what the client received–a legal entity that I have basically warranted will be upheld if challenged at a later time. How is that only worth $150?

On another note, consider percentage billing. Many financial advisors charge their fees as a percentage of the total assets under management. Why not charge estate planning clients or transactional clients the same way? This brings a dose of reality to the situation. After all, the monetary value of an estate plan to a client with $100 million in the bank is much different than the monetary value of an estate plan to a client with $100,000 in the bank. The lawyer’s risk is greater as well. Why shouldn’t the fee reflect this difference? The same goes for a business transaction. Why shouldn’t the lawyer’s fee be a percentage of the deal?

These types of fees give certainty to clients–something which they cannot get in billable hours scenarios. The client knows in advance that it will cost, say $1500 for an LLC or 0.5 percent of the client’s total assets to obtain the value of your services.

David, my most recent post addresses your arguments in this post. I think we both agree that honesty, fairness, and client service should rule the day. Now back to work.

David, my most recent post addresses your arguments in this post. I think we both agree that honesty, fairness, and client service should rule the day. Now back to work.

David, I just finished a trial today, but will add my comment to this post tomorrow. I appreciate all the help with my weblog. Matt

David, I just finished a trial today, but will add my comment to this post tomorrow. I appreciate all the help with my weblog. Matt