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Is time recording for lawyers the devil’s spawn?

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Must lawyers charging always be time based?

The subject of pricing and time-sheets has been pretty well done to death, and suffice to say I was doing fixed fee work in my practice years before I decided that commerce was more fun and left, which was 1998. We could do this profitably because we understood our variable costs well.

By and large I am against time-based billing unless it is required for some reason or it is the client’s preferred method.

Proponents of time recording make a number of claims about the fairness and so on of the process and it is fair to say that the large majority of professional firms still time record in some way, if only because time is a really good proxy measure for what economists call the variable cost of the output.

The for and against arguments on time based billing can get pretty heated

The ‘anti-timesheet’ brigade will claim that time recording is the root of all evil in professional practice, and I have known one to argue that people costs are a fixed cost, which may come as a surprise to anyone who has ever been let go by their employer.

I look at that problem a different way. In a professional practice if you want to make a significant change to your performance, you have to change people. You may change the number of people involved in producing the required income or (normally better) you may need to change the behaviour of the people in the business.

In order to do that logically, you need to know what they are doing in the first place and you need some form of measure. Time recording may or may not be the best proxy for that.

Working out the costs (and profitable charging rate) of any product involves accounting for paid time

I am a big fan of using the right tool for the right job. I have used time recording to build quite sophisticated pricing models for fixed fees and also to build forward medium term cash-flow forecasting of great precision. In my second job (I am a director of a timber milling plc) timesheets are absolutely indispensable for us to understand the costs attaching to different products and batch sizes. If a better tool comes along which gives us the critical information we need to be profitable, then we will grab it with both hands.

I think one of the big issues with the intense antipathy shown by some towards time recording in practice is the 6 minute unit. Here I am generally in agreement. The problem with measurement is that all measurements involve uncertainty and a degree of estimation (as Heisenberg famously demonstrated). The 6 minute unit may be too blunt for some measures and too sharp for others and irrelevant for others. One thing I think firms should do if they are recording time is to think how ‘fuzzy’ the data they can collect will be before they lose their predictive capacity. The aim is to collect and analyse the least amount of data at the lowest cost that allows quality  decision making (a rubric also much ignored in digital marketing…).

Staff are usually one of the most significant overheads in any law firm

For example, in our business, our dominant costs (like yours, I am sure) are people costs. Most people’s tasks predominantly lead to only a couple of sorts of outputs. No time recording for them. Mine are much more varied, so I record to the nearest hour. I spend about 2 hours a year on the whole process and it informs our decision-making processes wonderfully, as well as being the justification for our R&D tax credit claims on our software developments. Not precise, but easy and fit for purpose.

Use the right tool for the right job. When anyone stands on a soapbox to claim only their path to knowledge is right, be deeply suspicious, no matter what the message.

This is the editorial from issue 113 of the Law Management and Marketing e-newsletter repeated by request here.

Joe Reevy

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