Priori Insights: Technology’s Impact on Billing Arrangements

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By Oliver Duchesne
| Legal Industry

At Priori, we help in-house legal departments find, hire and manage outside counsel without the costly infrastructure of a firm. Our clients use Priori’s vetted attorney network and streamlined technology platform for a wide range of legal needs. Data is a frustratingly rare commodity in the legal profession and at Priori, we’re aiming to change that. We’ve analyzed anonymized data from thousands of engagements on the Priori platform and identified a few notable takeaways, which we will release in a series of three blog posts. The first of these involves trends in the frequency with which fixed fees vs. hourly rates are used in our marketplace.1

Industry-Wide Billing: Hourly Rate vs. Fixed Fee

Despite more than twenty years of predictions regarding the demise of the billable hour, the legal industry has largely stuck with it. Clio’s 2017 Legal Trends Report, for example, describes the billable hour as “alive and well” and “still by far the most common method for tracking work and billing clients.” Specifically, examining anonymized billing information from 60,000 lawyers, Clio found that 84% of engagements employed the billable hour and only 16% utilized flat fees. Importantly, these figures have remained relatively stagnant for the past 5 years.2

 

Fixed Fee Billing on Priori’s Platform

Alternative fee structures are making more headway on the Priori platform. In fact, Priori lawyers are more than twice as likely to utilize flat fees than the industry average: 65% of engagements involve hourly rates, while 35% use flat fees. The difference between the industry average and Priori platform usage extends beyond flat fee prevalence and into practice areas. According to Clio’s report, the most common areas using flat fees are traffic, immigration, criminal, elder law, bankruptcy and wills and estates. Priori clients and lawyers often do use flat fee structures for immigration, but since we work exclusively with businesses, work in the other listed practice areas is uncommon. In addition to immigration, the practice areas where Priori sees the highest usage of fixed fees are corporate, commercial and intellectual property.

What Accounts for the Difference?  

A few things could explain why clients and lawyers on the Priori platform are using fixed fees more frequently and in different practice areas than their peers. First, the types of clients and lawyers that are attracted to a technology-based marketplace model like Priori’s may be more inclined to experiment with alternative fee arrangements. The companies that use Priori often do so because they want to make their legal spend more predictable, and fixed fees are a relatively easy way to accomplish that. A second explanation is that Priori’s platform makes it easier to experiment with alternative structures. Before a new matter is opened on the Priori platform, both clients and lawyers have the option of either hourly rates or fixed fees as equally-weighted choices. It’s possible that the constant reminder and ease of choice built into Priori’s product is encouraging more fixed fee engagements.

Conclusion

The legal industry is the only professional services industry that has kept the hourly rate as the default business model. And with billing rates for partners at top firms now exceeding $1500 an hour, clients are looking for alternatives. It may be the case that the technology that lawyers and clients use in their everyday practices could spur the use of fixed fees.

In next week’s post, we’ll look at the hourly rates at which lawyers are hired on Priori’s platform varied across geographies and practice areas.

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1The “industry average” in this piece represents the amounts found in Clio’s 2017 Legal Trends Report, a comprehensive and exhaustive analysis using anonymized billing information from 60,000 lawyers. All prices in this piece are in USD. “Average” refers to the statistical mean.
2https://www.clio.com/resources/legal-trends/2017-report/

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