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Is Time Running Out on the Billable Hour

Is Time Running Out on the Billable Hour

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Published by: babyloushmoopey on Sep 25, 2010
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09/25/2010

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 April 2009
I
am a lawyer. It wasn’t easy getting here.I spent 7 years and $100,000 going touniversity to get 3 degrees. I passed theBar exams, articled or 10 months, andthen started my own law practice. But nowthat I’ve nally become a member o anesteemed proession, I ind mysel dealingdaily with a negative stigma let by lawyersgone and perpetuated by lawyers present. Tatstigma, as I’m sure you’ve guessed, is legal ees(as characterized by the billable hour) andit’s let a bad taste in the public’s mouth.Te billable hour, perhaps the dening andmost contentious issue surrounding legalservices, is relied on so heavily because lawyersdon’t really know what their services are worthand have little experience in estimating the totalcost o such services. Tere are many unknownvariables which can complicate matters and causeinitial time estimates to become meaningless. Yet the billable hour is an antiquated andunsatisactory valuation method. It deprivesclients o predictability over the costs o legal services. At the same time, it providesthe wrong nancial incentive or lawyers tocontinue working on les (e.g. litigationlawyers who settle disputes early on become poor, while those who drag their eet become rich).Te billable hour can also create other ethical andproessional problems within the lawyer-clientrelationship (e.g. lawyers pad their dockets orail to keep clients inormed o the runningbill). It is also to blame or lawyers’ work-lieimbalance (i.e. working 14 hours a day to bill 8hours). Finally, valuing legal services accordingto the time a lawyer spends working on a lesties innovative billing methods which wouldotherwise allow more people to (perhapssimultaneously) access legal services rom thatsame lawyer. With the emergence o new technologies(e.g. request or quote processes through
 www.DynamicLawyers.com)
 beginningto penetrate the mainstream legal servicesindustry, trends towards commoditizationand unbundling will expand. Consumerso legal services will rely more and more ontechnological mediums such as e-mail,internet, smart phones, social networking web-sites, etc., to shop around or the best deals.Tey will look or value-added services romreputable, accessible, and aordable legalservice providers; they will also expect to beable to compare the total costs o such services.In doing so, this new breed o client willcreate opportunities and competitive advantagesor those lawyers who leverage technology topromote themselves and deliver cost-eectivelegal services to the masses. It is in this new par-adigm that the billable hour in its current ormmay evolve to have a much lesser role to play invaluing legal services or cease to exist entirely. With these things said, I wanted to know thecurrent state o legal ees in general – and thebillable hour in particular – in oronto, Ontario,Canada. As such, the purpose o this report wasto survey 500 solo/small rm oronto lawyers tohelp answer the ollowing 7 questions:
How prevalent is the billable hour?
What was the average hourly rate?
How does that rate change based onexperience and primary legal area practiced?
What was their average initialconsultation ee?
How many provided a ree initialconsultation in some orm?
What was the average legal ee or certainbasic services?
What alternatives to hourly billing dothey oer?
 We interviewed 500 randomly selectedsolo/small rm oronto lawyers andound that:
Teir average* hourly rate was$338.
Hourly rates ranged rom$78to$750.
Teir average initial consultationee was$338.
 64%ofered some orm o reeinitial consultation.
Excluding contingency ees,only 5%ofered alternativesto hourly billing such as xedees, day rates, barter arrangements,quotes, pay-as-you go, perproject, etc.Overall, the predominance o thebillable hour may be challengedas solo/small rm oronto lawyersbegin to leverage technology toprovide legal services in a cost-efectiveand convenient manner to the masses.
* the word “average” means “weighted average”throughout this report
Prepared by:Michael Carabash
Is Time Running Out on theBillableHour?
 
Conclusions
Overall, our research revealed that the vast majority o lawyers surveyed still relied on the billable hour to value their legalservices. Teir average hourly rate was $338 – a daunting gureor the average orontonian in need o legal services. Further-more, while 64% o the lawyers surveyed oered some orm o reeinitial consultation, just over 25% o them only did so on a case by case basis. O those lawyers who charged or initial consultations,their average hourly rate was also $338. Unortunately, the vastmajority o lawyers oered little or no alternatives to the billablehour: excluding contingency ees, only 5% o the lawyers surveyedoered alternatives such as xed ees, day rates, task or project-based billing, barter arrangements, quotes, and corporate share inlieu o the billable hour. Tis shows that a lot remains to be doneby solo/small-sized oronto lawyers and rms to better embracetechnology to promote their law practices and provideinnovative legal services in a cost-eective and convenientmanner to the masses. Tis is particularly important given that thegrowing trend will be or prospective and sophisticated clients toshop online or lawyers and legal services.
Method 
Te data in this report was obtained by telephone interviewing 500randomly selected lawyers in private practice located throughoutoronto during the months o February, March, and April 2009.Tese lawyers operated either on their own (i.e. sole practitioners)or in a rm with up to 15 other lawyers total.
Disclaimer
Some words o caution are in order. Te survey sample and thendings contained in this report may not accurately reect the true state o aairs respecting legal ees and thebillable hour in oronto. Indeed, the “true state o aairs” may be too difcult – i not impossible – to simpliy through asurvey such as this one or various reasons. For starters, it istypical or a lawyer to practice in more than one legal area andoer a wide range o legal ees or his or her services. Tis can greatly skew the results. One lawyer in our survey sample, or example, had25 years o experience, practiced amily law, class actions, and civillitigation and charged between $0-$750/hour and between $1-$500or an initial consultation! Also worth mentioning is that there were also a number o outliers whose data tended to skew the resultsone way or another. For example, a criminal deence lawyer with 48years o experience only charged $100/hour while a corporate lawyer with only 2 years o experiencing charged $450/hour. While extremecases, they demonstrate the difculty in trying to generalize legal eesas a whole rom a very diversied and inconsistent industry group.
 About the Survey Sample
o provide some context to the results obtained rom the survey, it is worth discussing some o the characteristics o the sample group o lawyers who responded. Te ollowing chart shows a breakdown o their years o experience:Overall, the lawyers surveyed had a wide range o experiencepracticing law; the average lawyer had 19 years o experience. Telawyers surveyed also practiced in a variety o legal areas:Here, “Other” included legal areas such as aboriginal,administrative, bankruptcy, constitutional and human rights,environment, government, health, international, and tax law.
© 2009 - All Rights Reserved - Dynamic Lawyers Ltd., 24 Houndtrail Drive, Toronto, Ontario, Canada, M1C 4J7
2
 
Interestingly, our research revealed that those practicingcorporate and commercial law as their primary legal areahad the highest average hourly rates, while thosepracticing criminal law had relatively lower hourly rates.Te latter is due, in part, to the prevalance o legal aid hourly rates.For benchmarking purposes, the ollowing graphs break down the average hourly rates or various legal areas based onlawyers’ years o experience. Tis inormation should help averageorontonians get a better sense o the going rate or these types o lawyers. Please note that the red bars indicate outliers which tendto skew the data one way or another.
 Analysis
 
Prevalence of the Billable Hour
 As noted in the table below, o the 500 lawyers surveyed, the vastmajority o them (88%) relied on the billable hour to value theirlegal services:In certain legal areas – most notably, real estate transactions, wills and estates work, and criminal deence and personal injury litigation – lawyers responded that they used other billingmethods, such as xed ees or contingency ees instead o thebillable hour.
 
Average Hourly Rate
Our research revealed that the average hourly rate o the lawyerssurveyed was $338. Te ollowing pie chart shows that 72% o thelawyers surveyed had an average hourly rate ranging between $200and $400:
 
Hourly Rate Variations
Te ollowing graph shows that, as could be expected, thoselawyers with more experience generally charged more thanthose with less experience. Worth mentioning is that 1 o the 14lawyers in the 41-50 years o experience range reduced that group’saverage hourly rate considerably because they only charged $100/hour. Removing that outlier rom the survey sample would haveincreased that group’s average hourly rate to $386 (a $21dierence).
© 2009 - All Rights Reserved - Dynamic Lawyers Ltd., 24 Houndtrail Drive, Toronto, Ontario, Canada, M1C 4J7
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Yes 442 88%No 58 12%
Total 500 100%
Do You Use an Hourly Rate?

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