The hourly billing model for law firms is still ‘largely intact’ and is too profitable for firms to be incentivised to move away from it, according to a leading professional services consultant.
Maureen Broderick said her research indicated professional services firms and consultancies that operate in sectors where fixed fees predominate are some distance behind law and accountancy in terms of profitability. Bottom-line profits in law and accounting typically ranged from 20-40% compared to 15-20% in architecture and engineering, and 10-35% in consulting, she said.
‘It is easy to understand why the bill-by-the-hour professional service segments, such as law and accounting, are [reluctant] to voluntarily change their pricing models,’ she said. ‘The 2008 to 2010 economic crisis was an enormous speed bump for the professional service industry, and the traditional bill-by-the-hour segments were pressured by clients to seriously explore alternative billing arrangements.
‘As the dust begins to settle and the crisis diminishes, it is apparent the hourly billing model remains largely intact.’ Broderick noted there have been ‘repeated threats from clients to eliminate or modify hourly pricing’ over the past three decades. ‘But the model is still alive and well. Unless forced, there remains little incentive to tamper with such an historically profitable structure,’ she said.
Broderick conducted more than 130 interviews with senior leaders of professional services firms in the UK and US as part of her research, included in her book The Art of Managing Professional Services, published this month by Wharton School Publishing.