The Impact of Billing on An Attorney’s Practice

Can an attorney’s rate be likened to the value of a Pablo Picasso painting? How you monetarily value your time as an attorney can change the course of your practice and client relations.

The Business and Corporate Law Section of the San Diego County Bar Association hosted a virtual roundtable event on February 28, 2023, titled: “The Art of Billing.” The featured presenter was William E. Marshall, Esq., partner, and co-founder of UBM Law Group, LLP in Solana Beach. Marshall specializes in drafting and negotiating a wide range of commercial contracts and advising clients on compliance with the California Consumer Privacy Act and the EU’s General Data Protection Regulation. The event focused on how attorneys can effectively set billing rates, account for their time, when to write off time or apply discounts, and whether to charge for initial consultations.

Marshall began the event by drawing a parallel between an attorney’s hourly rate and art. Marshall illustrated his perspective with a story about a waiter asking Pablo Picasso for a drawing the famed artist quickly made on a napkin. In the story, Picasso tells the waiter he can have the drawing for $10,000 and the server balks at paying so much for a doodle that only took two minutes to make. Picasso protests “It didn’t take me two minutes, it took me a lifetime!”

Marshall explains that the process of setting your rate should consider your years of study and experience not just the actual time it takes to get something done. “You have to think about all the work that went into it to be able to do that thing in an hour. And you have to think about the value of that service to the client,” said Marshall. “Maybe that server could have taken that drawing and sold it for $20,000, right? That’s the more relevant measure of the value of what you’re doing, not your marginal cost to deliver.”

Marshall recognizes that attorneys may be uncomfortable about talking about their rates and therefore don’t always accurately bill. The reasons attorneys shy away from discussing rates are varied.

“That could be because the rate’s very high and we feel a little sheepish about that,” said Marshall. “It could be because the rate’s low and we’re just starting out.”

Marshall encourages attorneys to discuss their rates with other attorneys, including how they determine their billable rate. He acknowledges that information is tough to get, as most attorneys do not advertise their rate.

He also mentioned that other attorneys’ rates shouldn’t be the only factor to determine your rate. He suggests working your billable rate from the ground up. “Here’s my expenses, here’s my overhead, here’s my desired profit, and out spits a rate that you need to make, factoring in your realization rate, collections, and that type of thing, and then you come up with a number,” said Marshall.

Marshall also cautions attorneys that if they don’t promptly adjust their rates each year using the same factors, it could cost them clients.

“If I increase my hourly rate by $10 or $15 an hour each year, clients don’t blink an eye. They understand, especially in a high inflation market like this, they don’t even think about it,” said Marshall. “But, if I wait three years, and then all of a sudden I raise it by $70 an hour, even though the client benefited by my being negligent in raising my rates, saving them money, the optics of it are terrible, and they’re more likely to have sticker shock.”

But while Marshall urged attorneys to take their clients’ perspectives into account when setting rates and to be respectful of their dollars, he has a few warnings about discounts.

“Remember the power of discounting a rate versus discounting a particular invoice,” he cautioned. “You discount a rate, it’s forever. It reduces all the bills down accordingly, and then you’ve got to fight your way back up through rate increases, and it’s hard to do.” Instead, he suggested discounting a particular invoice.

Besides collecting from your clients, Marshall pointed out that attorney billing is also a necessary paper trail should you seek attorney fees in court, or if the State Bar comes knocking.

“You should have the paper trail just to make sure that you have some accurate representation of all the work that you’ve done,” said Marshall. “That you’ve been a responsible advocate because this is a highly regulated profession and because that’s part of the honor of being in an attorney is the idea that you are working really hard to make sure that people have what they need.”

Marshal also discussed reviewing your bills to determine what they are communicating to client. “If I or my associates spin our wheels for eight hours on something that takes two hours, am I going to put that on the invoice? You know, took eight hours, mark it down to two. No, I’m not, because all I’m going to convey is lack of efficiency,” said Marshall. “But, a little brief exchange, 0.1 at zero rate, no charge. That communicates to a client that you care about their pocket and that you’re not nickel and diming them.”

Marshall stressed that an attorney’s invoicing and billing are some of the most critical forms of how attorneys communicate with their clients and attorneys needs to step back, look at their bill and ask, “What is it communicating to clients?”

“Is it communicating value? Is it reasonable? Or is it sort of perfunctory and looks like you’re spinning your wheels and the client’s not going to understand what you did,” asked Marshall.

He left attendants with the following, “Think about your business, your practice as a business in all these dimensions I’m talking about. A ton of your time is spent dealing with these administrative things and they have huge impact on your profitability, your revenue, your success, your work-life balance, how comfortable and happy you are in your business. It’s a huge part of your business and it has nothing to do with the substantive legal work you do.”