Linda Artesani breaks down five billing models law firms use: hourly, fixed-fee, contingency, subscription, and hybrid. She explains how each affects accounting, which practice areas suit which models, and recommends LeanLaw and Clio for tracking billing and profitability.
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Hi there, Linda Artesani, Artesani Accounting. This week I'm going to talk a little bit about attorney billing and the different methods that the attorneys use to do their actual billing. I'll start with the standard one, and you'll be very familiar with this. In fact, um, The accounting industry used to be heavily into this, and I think this is where we are a little bit more future ready in front of the attorneys because we don't do this very much anymore, and it's hourly billing. So I think the tax professionals might still do a little bit of hourly billing, but we really don't. And it really ties you and binds you to a specific set of hours, whether you work 5 days a week or 7 days a week. If you stick an hourly rate on your day, You work 8 hours, 10 hours, or whatever. So multiply that, and obviously you don't work every waking moment of your working day. So you are restricted if you start to confine yourself from working with an hourly billing. So that's really one of the biggest downfalls. The other downfall is you have to track it. You have to be mindful about tracking it, right? Turning it on, turning the timer on, turning it off. Maybe booking it into your calendar. If meetings go over, are you adjusting for it? So these are the kind of factors you have to think about when you do the hourly billing. And then of course, one of the major things that happens where maybe the attorney's working on the matter of the case and they look at the hours, maybe they were doing research or doing, you know, looking things up or maybe depositions, and they start to look at all the hours and they look at the amount that's going to be billed to the client and think, oh, this— I can't bill this much. And then they start to write it down. So that's another downfall of doing that. And so hourly billing is still real popular with the legal industry. I'm hoping that— I'm starting to see that the attorneys, the younger ones, the millennial ones, are really moving away from that. And depending on the practice area, they're starting to move more towards fixed fee billing, which fixed fee billing is, is really good for us accountants because we can start to analyze the data. We still can analyze the data when it's hourly, but this case we can analyze the data And look at whatever they say the amount is. You just have to look at the costs. You can use— you still track your time, you just make your time non-billable. So we can start to look at the time involved. So let's just say, for example, a family law, family law practice area. The attorney would maybe have a package for divorce or have a package for child custody. And then you start to look at the hours, the expenses. Those usually still bill outside of the fixed fee. There's still an extra cost to those, and that's all gonna be really important to put inside their agreement with you. So that's the language around the fixed fee billing is really important when it comes down to that. So the other type of billing we see, it depends on the practice area, but here's a personal injury attorney, they do contingency. So that's an animal of its own. Contingency billing is, You know, you get a third, the attorney gets a third, the client gets a third, and of course all the expenses get paid off first. Those are usually with cases where maybe you're dealing with an insurance company, and the insurance company will— well, if you win the case or they settle out, you will get that fees in, in a big check, and then that money will get divvied out to all the parties. So the, you know, the client will get a third, the attorney maybe gets a third, depending on the agreement. And of course that varies by state, and there's rules around all of that as well. One of the other areas that I'm really kind of interested in, because it's something that maybe we can, we can start to think about using as accountants, is subscription billing. So I see that mostly with law firms that work with businesses. So if you're going to retain an attorney, as you know, he's working in Art of Signing Accounting, is going to retain an attorney for all their legal work, we would pay like a monthly fee. And it's a set fee. So maybe they're going to charge me $12,000 a year and I pay $1,000 a month. This for us makes life really easy when we can help them to really navigate through their cash flow. So it really makes a nice smooth cash flow with— unlike with a personal injury attorney, it's feast or famine all the time. And there's a lot of issues around that with, with personal injury attorneys. That's a— it's a tough practice area for most. Then of course there is also a combined hybrid. Um, maybe they do some fixed fee billing, some hourly. So there's some some combination. I see that probably most often if it's a firm that's future ready and starting to implement the fixed fee billing or maybe even the subscription. So it may be a multi-practice industry, a multi-practice law firm, and they will start to use a couple of methods. So they kind of implement both, best of both worlds. All of this makes our job more fun. We get to really analyze this data, let them know maybe this fixed fee price you have on divorce isn't enough. We're seeing that you're not making— so we start to track it by quote unquote project or track it by the matter or case and start to see maybe they need to raise that rate or, you know, do the little menu. We see that with immigration firms. They have like a menu, an offering for, you know, maybe they just straight up in immigration or anything like that. They have different fixed fees, but it's always good to see if they're making money off of this. How much is the profitability? Maybe they should target their marketing towards one or more Things that they're trying to sell in their packages, 'cause maybe they're more profitable, less work, more profitable. It's always a win for the law firm. So I hope that was helpful. I know I kind of went through that fast. There's a real detailed blog post attached to this video if you wanna learn more about the different types of billing that attorneys do. If you're an attorney or law firm and you need help, we provide accounting services here at Artisan Accounting. So please reach out. We also assist with, we will help you implement new software. We, Really only work with 2, and it's, uh, we will move you to LeanLaw or Clio. So it's the only 2 that we use in our firm. So that is something that you might want to consider if you're on something, maybe desktop, that's kind of siloed off to the side. That's an option. Also, we are here if you are an accountant or bookkeeper and you're learning this industry and you want more. We have a private group called the Accountants Law Lab and a Facebook group called the Accountants Law Lab. The links will be in the blog post. I hope you'll have a wonderful, wonderful week. Remember to hit the subscribe now button if you want to stay tuned for more. Thanks. Bye now.
