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Recession marked passing of the billable hour’s heyday

When North Carolina Lawyers Weekly first began publishing 25 years ago, few in the legal profession foresaw the decline of the billable hour as the most reliable piece of the pricing puzzle. 

But in the past decade, economic pressures and the rapid pace of technological evolution and innovation have combined to create a much more complicated picture. It’s a trend likely to continue as the lawyer ranks grow and alternative billing arrangements become more mainstream.

Erik Mazzone, director of the Center for Practice Management for the North Carolina Bar Association, said the state’s lawyers have been following the national trend in this area and should expect to continue to do so.

The conversation about alternative billing – a la carte services, limited scope representation or unbundling, fee arrangements and flexible payment plans – began before the Great Recession. A pricing structure that was squeezing the middle class out of legal representation was already in play. For many small firms and solos, the rise of document services like LegalZoom and RocketLawyer, which allow individuals and small businesses to bypass lawyers altogether, has made the need for economic solutions more urgent.

“The recession didn’t expedite the rise of technology, but it did coincide with the emergence of document services,” Mazzone said.

He said the bar association offers programs to help solos and small practitioners navigate the evolving price landscape. Pricing is a marketing process that requires lawyers to put themselves in the minds of their clients.

“It’s an activity that doesn’t come naturally to everyone,” he said.

In some sectors, Mazzone said, price chaos is prevalent because it seems to be the only differentiating factor for small practices. It’s hard for clients who have limited, occasional legal needs to assess the quality of the services they receive. Low cost often determines their choice. When some lawyers charge hundreds of dollars less for services than their colleagues do, it adds to marketplace confusion.

Changing economic tides have reached the larger firms as well. Murmurs about the vulnerability of the billable hour began as the recession persisted and corporate clients began looking for ways to save.

Toby Brown, director of strategic pricing and analytics at the 800-lawyer firm Akin Gump in Houston, is one of the authors of “3 Geeks and a Law Blog.” Five years ago, when he was head of knowledge management at Fullbright & Jaworski, another giant Houston firm, he recalls standing before a gathering of his firm’s attorneys on a Tuesday. He was there to tell them that knowledge management was going to become mission-critical because of alternative fee arrangements. By Friday he was standing in front of the firm’s leadership explaining alternative fee arrangements.

“That was all anyone heard,” he said.

Brown said acceptance of alternative billing arrangements has grown among large firms, which are changing the conversations they have with their clients to focus on goals rather than price. Mazzone said the attitude is changing among North Carolina’s larger firms as well, as in-house counsel face shrinking budgets.

“I’d say they’re embracing it out of need,” he said.

Brown said positive responses to alternative billing methods are common among the country’s AmLaw 100 firms, which have the resources to develop competitive strategies. That starts to drop off with AmLaw 200 firms and can dissolve once you get to AmLaw 500 firms. Brown says that at firms where it falls to the partners to work out the situation it can be utter chaos, with firms engaging in “suicide pricing” to retain clients.

Through his participation in the Legal Marketing Association, Brown helped create the Client Value shared interest group. It aims to be a discussion forum and resource center for legal professionals facing pricing challenges. He said he has been amazed at the group’s growth – from 20 members to 200 – in the past year.

“I just formed the group because I was lonely,” he said.

Lawyers from firms of all sizes are looking for help with pricing questions and marketing challenges. He said some state bars and the American Bar Association are catching up, providing services and support to meet changing needs.

“There’s a range there,” Brown said. “North Carolina is more forward-thinking, where they’re saying ‘We need to help our members adapt to that.’ ”

Follow Amber Nimocks on Twitter @NCLWTechTalk

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