Legal Billing

The Small Firm Billing Problem in 2021

Smokeball is dedicated to helping law firms be better, more successful businesses by increasing their organisation, productivity, and profitability. In the guide, Smokeball CEO Hunter Steele explores why lawyers may be billing for only a fraction of their time spent and what law firms can do about it.

​Multiple large-scale studies have shown that fee earners in small law firms are billing, on average, only 2.02 hours per day. The first time I read one of these studies, I dismissed the stats as some kind of marketing ploy. Lawyers are always talking about reaching billing targets and filling out time sheets, and the majority I speak with are working 10+ hours per day. The studies must be wrong was my assessment.

After the second and third reports came out saying the same thing, I decided to dig in myself. I set about to understand two things. First, is this true? And then, if it is true, why is this the case and, more importantly, what is being done about it? Is there really a small law firm billing problem?​

The deeper I dug into this topic, the more people I spoke with, the more data I crunched from thousands of small firm fee earners, the more intrigued and the more passionate I became. Fast forward two years and it is now not only my own obsession but the obsession of the entire team at Smokeball.

Is there a law firm problem?

The original source of investigation came from the Legal Trends reports from Clio in 2017 and 2018. We decided to run the data ourselves for fee earners across the Smokeball client base globally. Was this number, this measly 2.02 hours per day, true? It turned out that while our clients were billing slightly more than this, the number was not substantially higher.

We then started talking to firm owners and fee earners within our client base, asking them if they believed (both in the numbers and in their minds) that small law firm fee earners were only billing an average of 2.02 hours per day. The most common answers we received and themes we saw included:

  • Yes, we know we are terrible billers but that is just the way it has always been;
  • I don’t know what our average hours per day billing is but it wouldn’t surprise me if it were that low;
  • Probably, but our clients won’t pay anymore anyway so there is no way to change it
  • Well, I do a combination of time billed and fixed fee work so it is probably not an accurate reflection and I definitely bill more.

This last comment, around the combination of time billed and fixed fee work, intrigued us the most. Maybe this is where the numbers are skewed? Perhaps this would be the answer as to why the reported average is so low. Maybe things are not so dire after all. So again, we went back to the numbers.

A fixed fee activity is actually no different to a time-based activity, other than that it is for a pre-set number of hours. To illustrate, a bill of $1,000 with a fee earner billing rate of $250.00 per hour, is four hours work. Using this logic we ran the analysis again to see whether it would increase the numbers. It did, but by very little. The average hours billed per day over a 12-month period was still only 2.6 hours across thousands of hard-working Smokeball fee earners.

The data was verified, and it seems there was a clear problem. Small law firms and their staff play a very important role within our communities yet on average they were billing for only 25-30% of their day. How are they to provide a great service, produce good results, employ staff, and build a great business when there is a fundamental problem with the unit economics of what they do.

Has small law firm billing always been this way? Why isn’t it improving?

As we spoke to small law firm owners, fee earners, industry experts and our own team at Smokeball, we uncovered many reasons why this problem exists, and one of these reasons was one I identified with personally.

My father owned a small law firm, running a general practice with himself and four or five staff. He did a combination of fixed fee and time billed work as was required over many years. If we look at a common workday for my father in 2001, he was not on the computer very much. For his time-based work, he generally only had to record durations for client meetings, court appearances, dictation, and for taking the odd phone call. It was fairly easy to keep track of his time as he would spend a chunk of time on one activity before moving to the next.

Fast forward twenty years, and the world for fee earners has changed dramatically. The same fee earner now spends most of their time in front of a computer screen and the make up of their time entries have changed significantly for two main reasons.

The first is email, the now-dreaded communication tool that was supposed to change life for the better. The majority of communication between small law firms and their clients is now done by email. Client meetings are almost a thing of the past (with COVID cementing this), and no one seems to want to call anyone on the phone much anymore. The one comprehensive letter that used to be drafted and sent to a client updating them on a case, requesting information, and proposing next steps, has now turned into twenty or more emails over a two or three-week period. Urgent requests for status updates, or emails just to “check in”, have fee earners drowning in their inboxes. Of course, this is just from their clients. Then there are all the other parties involved in the case, and let’s not forget the internal conversations and questions, and the emails fee earners are forwarded and copied on just in case they need to see them.

The second is document production. My dad used to be what they call a two finger or a ‘hunt and peck” typist. Very rarely did he fill out court forms, draft agreements, or type letters himself. With the evolution of computers and the introduction of email, this has changed rapidly. It is rare today for any fee earner not to have a computer on their desk. It is where they spend a lot of their day. As fee earners’ typing skills have improved, with increased access to word processing and document generation software, pressures on support staff ratios has also increased, with the result that more and more fee earners are spending time in Microsoft Word generating documents for a significant proportion of their day.​We wanted to verify these trends, so again turned to running a high-level analysis on the millions of time entries created by Smokeball users globally over a four-year period. We found the results astonishing. Over 60% of time billed was made up of either email communication or document production. This was followed up by phone calls, court appearances and client meetings, together representing for another 25% of their time, leaving only a handful of items in the miscellaneous category. ​​

legal document automation

We believe that this shift over the last twenty years in work product helps to answer why small firm fee earners are billing only 2.02 hours per day on average.  And the answer to the question as to whether it has always been that way is, we believe, no, it has not always been this bad.

The increase in complexity of billing, and the increase in the sheer number of iterative transactions that fee earners deal with and perform on a daily basis, makes it all too difficult to keep track of time. The result is that only the “chunky” items are recorded and billed for, which on average is apparent to be only 2 hours per day.

With technology adaption increasing at the fee earner level, and the expectation for timely and ever more regular client communication becoming greater, there did not seem to be a way forward to help small law firm fee earners bill more. In fact, it looked like the problems of burn out were likely to get worse, not better.

How to change it? A revolution in software for lawyers

To jump to the punchline, there is a way forward to help fee earners bill more, and we uncovered it. Smokeball enables law firms to bill on average two hours more per day without charging their clients more, equating to additional billings of $135,000 per fee earner per year.​How can this be possible without billing clients more? It is through the combination of two powerful tools.

First, the unique automatic time tracking built into Smokeball (we call this AutoTime); and second, through our best in market productivity tools that allow law firms to power through their work, and cutting out hours spent on unbillable administrative work.​Smokeball has long been lauded by our clients for our productivity features. Our investment in beautiful integrations to Microsoft Word and Outlook, our advanced matter management and time saving task, workflow, and event management features allows our clients to get more than 30% more work done in the same number of working hours.  Smokeball’s hybrid cloud platform allows you to have all the benefits of a cloud application (no server, work from anywhere, security, back-ups and peace of mind) whilst still a rich interactivity with your desktop, MS Word and Outlook  - all the work tools small law firms use to get work done every day.

As a result of these rich integrations and years of engineering refinement, Smokeball is today able to track all activity performed on a matter, timing it to the second. Every time an email is drafted and sent, or received and reviewed, we track it and associate it with the appropriate matter. Every document that is created or reviewed, we track it and associate it with the matter. Every task, event, message and even data entry is tracked for every user, on every matter, every day – without timers, timesheets or any human interaction. This data is the key to all firms increasing their billings.

For time-based matters, your time sheet is created for you as you work. No longer do fee earners have to remember every activity and write it down, or enter it as they go, or review their work at the end of the day, week, or even month to try to create a time sheet for billing. Our clients need only spend a small fraction of their time reviewing the time entries created for them and making small adjustments where necessary so it is ready for billing. For email and document review, this means no more missing out on a myriad of short interactions. Auto:Time captures all of these interactions, adds them up and bills in one clean time entry per day.

The combination of AutoTime with Smokeball’s productivity features means that time-based fee earners are easily capturing more than 4 hours a day, for work that has been performed in the most productive way – the software has done the administrative heavy lifting! This means the firm bills more, but clients don’t pay more.

For fixed fee matters, getting the work done faster and more efficiently means decreasing the time it takes to do the work. This means you’re spending less time at the same hourly rate, therefore increasing the average hours billed per day.

Further to this, with Smokeball fixed fee firms have the benefit of looking at their matters at an individual, practice area or staff level to know if they are profitable or not. Knowing how much time has been spent on a matter, and how much is billed, allows firms to adjust pricing, resourcing, or productivity to ensure they are building a profitable and successful law firm.

We see clients moving some practice areas from time-billed to fixed fee with confidence, as they now know the cost base for this work. In other cases, we see firms change from a pure fixed-fee billing paradigm to a blended billing system where cases that blow out shift to time-billed at a predetermined time.

From a resourcing perspective, our clients see opportunities to potentially use more cost-effective staff members to do more of the day-to-day work on their fixed fee work, using their most experienced fee earners’ time more deliberately in their cases.

We see more and more firms billing what they are worth

I was once advised by an associate of mine to not confuse marketing with delivery i.e. that what a company conveys in its marketing need not be reflected in the actual value delivered to clients. This never sat well with me, to the degree that I instigated a core value at Smokeball which promotes the opposite view, to “innovate for the client – not the press release”.

Smokeball has effected real change for thousands of law firms already with our AutoTime plus best in class productivity approach. The results speak for themselves.

  1. Smokeball fee earners are billing 3.2 hours on average per day, 45% more than the industry average.
  2. For Smokeball fee earners billing more than 4 hours per day, 81% of them are using AutoTime in their time billed work.
  3. On average, Smokeball fee earners are billing $135K more per year than their peers.

​Another way to show the proven results is with client examples. Below is a redacted report of a Smokeball client who is not using AutoTime compared to another client who is. This first firm was leaving $660K on the table each year. The second firm is putting those dollars towards growing their business, supporting their staff and their community -  and they and their business are now thriving.

law firm billing
Figure 1. Smokeball Firm not using AutoTime leaving $660k on the table
Law firm automatic time recording
Figure 2. Smokeball Firm with all fee earners using AutoTime billing over $500k more that prior to Smokeball

Change is hard

It would be nice if change was easy, but it isn’t. It would be nice if you could implement software, tell your staff to use it, and watch the change unfold – but it doesn’t always happen that way. It takes time, focus, and persistence on top of the right tools.

Smokeball is dedicated to helping small law firms solve their billing problem and help not just the technology but also with the training and the accountability to change. This is our mission. We are not going to stop until we see small law firms billing appropriately for their services, becoming better businesses, and ultimately helping the communities they support to thrive.

What's next?

If you want help changing your law firm to be “better than average”, statistically speaking, if you want your fee earners billing $135K more per year, we would love to hear from you.

If you would like to learn how Smokeball can transform your business, please give our friendly team a call on 1300 33 55 53 or book a free online demonstration.

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Feb 02, 2022