You keep seeing headlines about the billable hour dying, clients demanding fixed fees, consultancies setting the pace years ago, and you are still sending out invoices built on hours.
The question is not whether you should start changing from charging by time, but how to move away from this billing model.
Sorting out your own pricing habits, rather than waiting for your firm to change its model for you, is exactly the kind of initiative that marks someone out as ready for partnership.
I’m Heather Townsend, author of Poised for Partnership and co-author of How to Make Partner & Still Have a Life. I’m the leading global expert in what it takes to move from senior fee earner to partner . Here are 5 ways to work with me.
In this episode of the How to Make Partner Podcast
- Why AI is accelerating a market place change to fixed fees
- How to start the process to move from billing by time to fixed fees or another way of charging
- Practical habits to build now if you are still billing mostly by time
- What all of this has to do with being seen as ready for partner
If you find this episode useful, don’t forget to like it and then subscribe so you don’t miss another episode.
What Help Is Out There For You?
If you’re thinking, ‘This all makes sense, but I don’t have the time or the data to work any of this out properly,’ our Progress To Partner Academy can help you.
You can also listen to this episode on Substack and on Apple Podcasts
Hello, and welcome!
You open LinkedIn. Another article. Another general counsel telling a journalist they want fixed fees, not hours.
And you are still sending out a bill built entirely on the clock, wondering whether you have already fallen behind.
But then the death of the billable hour has been predicted by many industry commentators for years. But it is still prevalent within the professions.
This podcast episode follows on from last week’s episode, and it was prompted by a recent Economic Times article on exactly this change, with senior lawyers and general counsels going on record about where legal pricing is heading.
But what if you still bill mostly by time? How do you move to a fixed fee or different pricing model to billing by time? That’s the focus of this episode.
This is the How to Make Partner podcast with me, Heather Townsend. The author of Poised for Partnership, and co-author of How to Make Partner and Still Have a Life. In this podcast, I will be highlighting some of the great stuff in our Progress To Partner Academy. New episodes are released weekly, so press subscribe so you never miss a new episode.
Right, let’s pick up where we left off last week.
Last week I talked about what to say when a client asks you to reduce your fee as they know you are using AI to be more efficient. And they want to see this reflected in your fee to them. This week I want to tackle the problem. If AI is meaning billing by time is being increasingly obsolete or no longer fit for purpose, how do you change how you bill.
A recent Economic Times article (published in India) quoted Nishant Par-ick, a partner at Trilegal, and sah-low-nee ko-THA-ree, group general counsel at BDO India, both talking about the same move away from billing by the hour.
Corporate legal teams are pushing their law firms towards fixed and project fees now, the same direction management consultancies like McKinsey and Boston Consulting Group already went. “We now expect true transparency, not just hours logged,” Kothari said, and what general counsels want now is certainty on cost upfront, not open-ended hours they cannot forecast.
Parikh talked about Trilegal automating the routine end of legal work, and putting more weight behind specialist knowledge, in areas like ESG and forensics, as the harder thing to replace. Consultancies like McKinsey have been charging fixed fees for exactly this kind of expertise for years. In the world of accounting, compliance work is typically charged on a fixed fee basis. But its the complex advisory work, such as M&A where advisors often shy away from quoting anything but billing by time.
Although this can be very region specific. For example, in Brazil, clients expect fixed fees as the norm for tax and accounting work.
The move away from billing by hour is not going away just yet. Complex advisory work is expected to keep commanding premium hourly rates for a while yet. It is the more routine end, due diligence, compliance, regulatory work, standard litigation or ‘volume work’, where fixed and hybrid pricing is expected to become the norm, and what the market expects from their professional advisors.
So this is not a fringe worry any of us can shrug off. It is now industry wide. But the question I actually want to answer today is a practical one: what do you do if you are still, largely, billing by time?
Before we get into what to change, I want to deal with a bit of maths.
Say you bill £200,000 a year, at a 30 percent gross margin. That is £60,000 gross profit. Now raise your margin by five points, to 35 percent, with no new clients and no extra hours, and your profit goes up to £70,000. If, on top of that, you also manage to bill 5 percent more with the same people, so £210,000 at that 35 percent margin, your profit is now £73,500. That is a 22.5 percent increase in profit, without taking on a single new client.
I am giving you that maths because it doesn’t how you bill if you are not making a profit on your work. The billing model on its own is not actually the thing that makes or loses you money. Your margin is. If moving your margin by five points and your billings by five percent can lift your profit by over twenty percent without a single new client walking through the door, what is actually stopping you from starting on that this quarter?
So if you are still mostly billing by time, here’s how to start the journey to changing to billing by some other mechanism, such as a fixed fee or a success fee.
Firstly, be clear about what your client would actually value. For example an M&A partner said to me his clients prefer capped fees rather than fixed fees. That’s because they want the benefit of fees potentially being less than quoted. Do you clients want fixed fees, capped fees, success fees, a retainer or something else?
First, look backwards before you look forwards. Go through your last handful of jobs, projects or matters and work out which ones actually made money, and why. For example, a litigator who moved to fixed fee billing would quote a fee estimate based on a number of assumptions to get to the next stage in the process. They would regularly talk to the client about the progress of the case and the impact of the fixed fee to the client.
When you deliver complex pieces of work you may find that you need to break the work into phases and give clients an estimate for each phase which then gets agreed as you get to that phase and understand all the variables involved.
Whilst you may think this is a one and done piece of work, this is should become a regular discipline. I.e. an end of job review where you understand where you made or lost money on the work. It’s this discipline that gives you the confidence to be able to quote a fixed fee for your work AND know you will achieve your desired profit margin on the work.
Moving to fixed fees means the efficiency of how you work on the client’s job now matters in a way that never used to matter. After all you could always bill by what was on the clock – and this meant you had the luxury of being inefficient.
Now look at what you do and see where you can systemise or standardise what you actually do. Or use a software package to do some of the heavy lifting such as with data analysis or drafting documents? We often don’t think about this when we are billing by hour. For example, do you typically ask for the same information from a client when you start work? Can you use technology to get this information in smoothly in the right format for you to use?
Second, stop guessing the time yourself. Ask the people actually doing the work how long they think it will take, before you quote it. Someone who has done that type of work before will give you a better estimate than you will. Plus asking your team for a fee estimate, builds more commerciality from your team. It also means, when a matter or job does overrun, you have got a record of what was reasonably expected.
Third, build your assumptions about price into the engagement letter, in writing, from the start. If the work is meant to take four weeks and it runs to eight, or the scope changes halfway through, you want a pre-agreed, legitimate reason to go back to the client and revisit the number, rather than absorbing it and calling it bad luck.
I was on a group call with a senior M&A partner. He actually said “I don’t make assumptions I put conditions into my fixed fee quotes”. Whilst you may think this is a nuance and play on words, it’s actually key. I.e. if these conditions happen, then this is what happens to your fee. It also makes you sound, in my view more confidence and credible about the work that needs to be done.
For example we were travelling to a client to deliver 2 workshops back to back. We had costed into our fee a saving on travel time because we could deliver both workshops in the same trip. Whereas the client decided to delay the second workshop and we couldn’t deliver them both at once. As a result we needed to increase our fee from the engagement letter. But we had got this assumption in writing and informed the client why our invoice was going to be significantly bigger than they expected.
Fourth, whatever your billing model, keep the client updated on hours and cost as you go. Even a simple email, this is where we are, this is what has been spent so far, protects you later. It is on record, and it means nothing about the final number comes as a surprise months down the line. Whilst this will not stop a client questioning the fee at the end, it does mean the conversation starts from facts you both already agreed on, rather than a number they are seeing for the first time.
None of this requires you to abandon hourly billing overnight, and for a lot of complex, judgement-heavy work, hourly, or something close to it, is probably going to stick around for a good while yet. What it does require is treating your pricing as something you actively manage, rather than something that just happens to you every time you fill in a timesheet.
That’s really the change happening in the market place right now. Getting comfortable with a changing marketplace is a big part of what separates someone who is ready to run a practice from someone who is still focusing on the work in front of them.
So whether or not the hourly billing model has broken everywhere yet, you do not need to wait for your firm to make that decision for you. Start with your own numbers, your own assumptions, and your own habits around keeping clients updated, and you will already be ahead of most of your peers. Of course, you may need to gain your partners agreement or service line agreement to how you plan to price your work going forward.
I’ve popped a link to our Progress To Partner Academy, which contains resources and courses to help you step up to partner and when you get there stay there, directly in the show notes for this episode. Included in the academy are resources on business planning and pricing your work properly, and many, many more. Also in the show notes, you’ll find links to my books, Poised for Partnership and How to Make Partner and Still Have a Life, so you can easily find them on Amazon. And as a thank you for listening, there’s also a link for a 10% discount on annual membership for our Progress To Partner Academy using the code PODCAST10.
That’s all for this episode of the How to Make Partner podcast. What’s your action for this week? Before your next billing cycle, pull up your last five jobs or matters and think about how you would go about charging a fixed fee for this piece of work. I.e. what are the key variables that increases or decreases the fee you charge?
If you have enjoyed this episode please leave us a review on Spotify or Apple Podcasts or give us a comment on Substack. This helps us get the word out to others who may need this advice too. Remember to hit subscribe so you don’t miss next week’s episode. Thanks for listening!
I’m Heather Townsend, author of Poised for Partnership and co-author of How to Make Partner & Still Have a Life. I’m the leading global expert in what it takes to move from senior fee earner to partner – and when you get there, stay there. Here are 5 ways to work with me.
What help is out there for you
If you’re thinking, ‘This all makes sense, but I don’t have the time or the data to work any of this out properly,’ our Progress To Partner Academy can help you.
Take the Partnership Readiness Assessment
Free to complete, 10 to 15 minutes, and gives you a personalised report across all 12 key indicators. Take the assessment here.
If the Partnership Admissions Process is what is in front of you, this section of Progress to Partner will help you go into it prepared rather than hoping.
Use code PODCAST10 for 10% off annual membership. Click here to join.
Books mentioned
Poised for Partnership by Heather Townsend – https://amzn.to/3ETEYk3
How to Make Partner and Still Have a Life by Heather Townsend and Jo Larbie – https://amzn.to/4iLxugM
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