Effective Billing:

The Lawlady Interviews Law Practice Management Consultant Ann Guinn

Ann Guinn has been consulting with solo and small law firms about law practice management over 25 years. Her forte is billing, and how lawyers can achieve fair and reasonable compensation for their services. I interviewed Ms. Guinn about the mistakes lawyers make with billing, and how they can earn more working smarter, not harder.

Lawlady: Ms. Guinn, what is the biggest mistake lawyers make when setting their fees?

Guinn: In my experience, lawyers tend to charge what they think the market will bear without having a clear understanding about what those numbers really are. Typically, they will look to what their competitors charge, but this is comparing apples to oranges. There is no way to adequately compare lawyer services. How do you say, “I am a better attorney” and then quantify this statement to justify a higher rate? You can’t. Besides, a lawyer doesn’t know the other lawyer’s overhead and costs of doing business. Without these numbers, you don’t know what other lawyers are earning as profits.

Lawlady: If the comparison method of fee-setting isn’t accurate, how do you recommend that lawyers set their fees?

Guinn: In my seminars and with my consulting clients, I recommend calculating a minimum hourly rate by looking at overhead costs, realization rates on billable hours, and the number of available hours each year for work. Once you know what you need to earn, you factor in the demand for your services, years of experience, and reputation, with a nod to what the current market price is for your practice area.

Lawlady: Why is this formula a better method of setting fees than charging the “going rate.”

Guinn: It ensures that lawyers are adequately compensated for the costs of doing business and their services. And from my experience, many lawyers feel they aren’t making enough money for the effort that they put into their work. Often times, this is because they simply aren’t charging enough, given the high costs of being in business. My work is to help lawyers clarify their financial needs and goals, and then, based on that, charge a fee that is fair to both the lawyer and client. Charging too low of an hourly rate can be a problem. Calculating the cost of doing business into fee setting can correct this problem.

Lawlady: What other ways do lawyers tend to under-earn?

Guinn: A very common problem is that lawyers who do not carefully track their time tend to under-estimate the time they spend working on a matter. With almost every client I work with-and I’ve worked with hundreds of lawyers-I can find examples of where they under-bill.

For example, I met one attorney at her office. As she came out to greet me, she got a phone call. She asked if I minded waiting for her to take the call. After she finished, I asked her if she was going to write down the time for that call. She said, “Oh yes, I forgot,” and then wrote down 20 minutes. I asked her what time it was. It was then that she noticed she had been on the phone for an hour and 40 minutes. As human beings, we tend to underestimate how long we spend doing things. This hurts us on the bottom line.

Lawlady: What other billing missteps do you encounter?

Guinn: To flat fee, or not to flat fee- that is the question.

Lawlady: Why is that such a big issue?

Guinn: The problem most lawyers have with flat fee billing is that they have no system in place to verify if the flat fee amount adequately compensates them for time spent on a file. They don’t track hours spent on flat fee files and don’t know if the flat fee is set too low.

With one client, when we reconstructed the amount of time spent on court appointed cases, we discovered he was earning about $67 an hour for this work. He was then in a better position to evaluate whether he could afford to take these types of cases. When he didn’t factor in all the time these cases take, he was under the false assumption he made much more on this work.

Lawlady: Where can our readers learn more about setting billing rates?

Guinn: My contact information is G&P Associates at (253) 946-1896 and at anngp15@aol.com.