Overbilling Clients is Bad Business
I have been retained a few times for the unpleasant job of Expert Witness in a patent legal fees dispute. Trust me, it is no fun picking apart the legal bills of a professional colleague. It is particularly dreadful when said ‘professional’ has over-billed the client to a level that is shocking and borderline morally repugnant. We all know lawyers who tend to push it and over-charge clients, but some are way beyond the pale. It’s reprehensible for many reasons, but that’s not the point here…
23 years ago, I had a very wise mentor who called me into his office and said “your work quality is very good but your bills are high. You don’t want that reputation – it’s hard to shake. Don’t be ‘that guy.’” I remember the long walk back to my office, humiliated, but this was great advice for a young lawyer, and I am deeply appreciative to this day. This advice has helped to shape who I am as a lawyer and as a person.
As lawyers, we sell our lives one slice at a time “on the clock” at an hourly rate. We all feel some degree of pressure to push billable hours in order to increase our income, impress the partners, make a good bonus, and/or make partner. But here’s my advice: don’t do it. Bill reasonably and you will win big over the long run.
There’s an old saying: those who take eat well, but those who give sleep well… So be a giver, not a taker. But this isn’t intended to be a lecture on morals; there are plenty of practical reasons why over-billing is a bad business strategy. Clients want high quality work at a reasonable price, so give it to them and you will achieve all the success you desire, and you’ll sleep well (as an added bonus)…
The optimal value of a client arises from longevity, not from maximum billing rates. A $100K/yr client budget over 10 years is much more valuable than a $150K/yr client who fires you after one year when they find someone who bills more reasonably.
The cornerstone of a long healthy attorney-client relationship is trust, and this is directly connected to reasonable billing practices. Treat clients right and they will treat you right (usually…).
Practicing law is not a sprint, it’s a marathon. You will make plenty of money over the course of your career; be patient. You probably have a healthy hourly rate, and you’ll bill more than 50,000 hours over the course of your career – you’ll be fine financially without padding your bills. If you do high-quality work at a reasonable price, clients will stay with you for the full marathon.
As a lawyer – regardless of your specialty (patent attorney, IP attorney, trademark attorney and more) – reputation isn’t everything; it’s the only thing. Success requires a reputation as a producer of high-quality legal work at a reasonable, competitive price. If you gouge your clients, they will eventually figure it out, and nothing spreads faster than good gossip about a lawyer who is ripping off clients. You will lose everything in the long run: you’ll lose your reputation and you’ll lose your clients.
ABA Model Rule 1.5 is very helpful. This rule states that legal fees shall be reasonable, and may be based upon a “time and labor required,” “novelty and difficulty of questions involved,” “the fee customarily charged in the locality for similar legal services,” “time limitations imposed by the client,” “nature and length of the professional relationship,” “experience, reputation and ability of the lawyers performing the services,” and other factors. These are all important factors in determining what is a reasonable fee, and you should include ABA Rule 1.5 in your engagement letter. Make sure you client understands your billing practices up front – no surprises!
Look at the legal services rates in your region. For patent attorneys, the AIPLA produces an annual Economic Survey, which is worth the price of membership. Look at the average number for services you provide, and fly under them. Rates are plenty high across the country, and being under the average is a good strategy for retaining clients and for attracting new clients.
It is also very important to be clear with your clients regarding billing. Your clients are all operating under a budget, so billing certainty is critically important. Give them a price estimate for their spreadsheet, and then stick to it. If you wreck their spreadsheet, they will be irritated, you will look bad, and you may lose the client. If you need to overrun the estimate, then call the client first. Clients don’t like billing surprises, so don’t surprise them. Explain the situation ahead of time, and they will appreciate it. They know that an estimate is just that – it’s a guess, but whenever possible, beat the estimate and be a hero; it’s a great relationship builder.
Be crystal clear with your clients. Communicate with them regarding your invoices so there are no surprises. Help them to budget accurately. And bill reasonably. Do the right thing: it will pay off.
So, here it is:
1) Over-billing clients is just plain bad business. So be a giver, not a taker. It will pay dividends.
2) Focus on quality, not billable hours. If you don’t, the client will find someone else who will.
3) Be clear with your clients regarding your reasonable billing practices. Include ABA Rule 1.5.
4) Figure out the local average for legal services and fly under it. It’s great for client relations and for marketing, and you’ll still make money.
5) Understand that your client lives on a budget spreadsheet – help them do their job.
6) Give the client an estimate, and then beat it, whenever possible. Be a hero.
7) Don’t be “that guy” who over-charges. Everybody knows what you’re up to, and they don’t like it.
8) If your firm is putting enormous pressure on you to bill, then ask yourself if you are in the right firm.
9) It’s a marathon, not a sprint: pace yourself.
10) Consult your favorite ancient holy book – there’s probably some good billing advice in it!