Ridiculous Billing Practices Cost Everyone
Yesterday an entrepreneur friend of mine shared an experience that was completely outrageous but, at the same time, not entirely unique. It’s a story that I believe has some extremely valuable takeaways for lawyers.
His situation goes to the heart of a hypothesis that I’ve been pushing for a long time. Namely, that there is a huge and very specific pocket of inefficiency that currently exists in the market for legal services.
While lawyers (particularly business lawyers) are trying harder than ever to generate and keep clients, there exists a ton of aggressive, smart entrepreneurs who need good legal services – and are willing to pay for them – but don’t seek them out for fear of irregular and/or unbounded bills.
These innovators see lawyers as one of the only service providers they work with who are simply unwilling to provide professional services at a (reasonably) predictable rate and to send regular and timely bills. Some may say “unable”, but I think “unwilling” is much more accurate.
Consequently, work that is already out there waiting to happen never gets surfaced. Both entrepreneurs and lawyers are worse off for it.
In a nutshell, here’s what happened to my friend:
Prior to his current venture, my friend was recruited to help turnaround a financially troubled technology company. Part of his turnaround efforts involved trying to keep the employees from jumping ship while he was doing his best to raise additional funding.
Sadly, the company didn’t make it and worse yet one disgruntled rogue employee decided to personally sue him for being “defrauded” into staying with the company. A truly ridiculous claim on many levels, but one purposefully constructed to circumvent the company’s lack of assets and instead get at my friend’s personal assets. (While being very savvy with respect to running a technology business, he had no experience with litigation like this, and neglected to make sure adequate insurance was in place to cover him for such nonsense before accepting the job. An innocent but harsh mistake.)
So, not only did my friend leave that company with over six figures’ worth of his own unpaid salary, but also with a crazy pro se litigant chasing his tail on a bogus claim that was being sued in a remote jurisdiction. Yes, no lawyer would take her case – which ironically made things even harder for my friend because in litigation, few things can be worse than dealing with an unmanaged pro se opponent.
As he moved on to run another company, this legacy case dragged on. He found a lawyer to help him out and paid a hefty initial retainer. The case went through the standard pleadings and motions and such until it was finally disposed of prior to trial, well over a year later.
During the process he received one bill quickly after first hiring the lawyer, part of the retainer was drawn down, and he received no bills thereafter. My friend didn’t think much of this, as he was busy working on another venture and there were several months of inactivity between any significant actions occurring in the case.
When the case finally resolved, the lawyer decided to send my friend a single, final, “catch-up” bill. For nearly $70,000.
Upon objection to the bill, the lawyer responded that he too was surprised (!) by the amount. This of course infuriated my friend even more: how could you be surprised? It’s your work.
Unfortunately, this is an all-too-common complaint: months go by before any billing is provided, let alone discussed, and when the bill finally comes it’s completely disproportionate to expectation and – arguably – actual value delivered. The client is furious, the lawyer takes a haircut, everyone loses.
Worse yet, this is a guy whose entrepreneurial spirit and drive is the kind that will continually generate interesting, complex – dare I say fun? – legal work in the future. And he respects the intellect and guidance a good lawyer can bring. Yet, instead of being encouraged to seek out the good counsel he’ll need, he’ll run from it. Why? Because of inefficient, ridiculous, old-school practices.
I rarely do this in the blog, but a quick commercial really does apply here. One of the things we often hear when lawyers first use Rocket Matter is that their billing practices immediately and dramatically improve. This improvement in billing practice is not only good for the firm’s immediate finances, it often has a positive ripple effect over several other things. More frequent billing can also ensure more regular communication, better and more accurate cost estimates, and can even indirectly improve marketing insofar as a huge barrier to bringing more work (cost uncertainty) is being better contained.
If you are not able to track your metrics and get your bills out to clients within 30 days of performing services, you’re losing money, one way or the other.
And if you’re waiting several months like this lawyer did, then that bill – even if every single bit of it is completely justified – is about as fragrant as a gallon of milk held for the same amount of time. Actually, that’s a pretty good analogy: When you send a bill out, compare its freshness to a carton of milk held for the same time.
The more current, accurate information and metrics the lawyers has, the more the lawyer can move away from the “cost-plus” model that is the billable hour, and move toward billing practices that actually encourage clients to bring you work. Affordable technology to faciliate this is available.
The phrase “I have no idea how much this will cost, it depends on ….” is being phased out of the legal billing lexicon, as is the practice of randomly sending out bills, or sending out bills whenever you find time to get to them. Don’t be like the dinosaur my friend mistakenly got involved with, because guys like that are costing everyone by unnecessarily creating lawyer-aversion.
He – and a lot of his other friends – have a good chunk of great legal work to hand out, and he’s going to have more of it in the future. Make it easy for him. Give him a fixed price – or something close to it – rooted more in the value delivered as opposed to just how long it might take you to do something. Communicate regularly with him. Send him bills regularly just like his other vendors do.
That’s a win-win waiting to happen.