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Study Finds That Solo Lawyers Bill Only Two Hours A Day…But What Does That Mean?

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shutterstock_257771839Earlier this week at the Clio Cloud Conference, company co-founder Jack Newton announced the creation of the first Clio Legal Trends Report, the first such report based on data generated by Clio’s users.  Although the full report won’t be ready for release until next month, as a teaser, Jack shared a couple of juicy factoids gleaned from the treasure trove of information that Clio gathers from users.  One of the most surprising  discoveries at least on its face, was that solo lawyers bill only a fraction of their time:   just 22 percent or 1.76 hours in an eight hour, and of that amount, they collect just eight percent (1.4 hours).

On its face, this fact sounds horrifying – but what does it really mean? How was the data collected and from who? Does it include only full time lawyers, or also lawyers working part-time or on an intermittent contract basis? And is it really such a bad number? I’ll drill down in a minute, but I was shocked that no one thought to probe any deeper into that fact during, for example, this Legal Talk Network podcast on the Legal Trends Report.  And while I realize that my criticism may be premature — after all, the backstory may emerge when the full report is released next month, many people may not read that report and by that time, will remember only the “22 percent.”

In the hopes of starting a conversation, I’ve laid out some of my thoughts below. Admittedly, my views may change after the full trends report is released, but I think it’s important to focus discussion on what’s underneath the numbers, rather than the numbers themselves.

Fact 1: Solos Underreport Their Hours

The Clio Report does prove one thing: solos, for whatever reason, underreport their hours in response to surveys. When you look at the Clio data, irrespective of the details of how or from whom it was gathered, it does tend to show that solos are billing far less in practice than they say. For example, the 2012 Survey by Lexis/Nexis  reported that solos surveyed billed just 60% of their time worked – a huge disparity from the 22 percent finding in the Clio Report which relied on data rather than surveys. The gap between the Clio data and surveys makes sense as I suspect that most solos don’t have a good sense of the real percentage of time that they bill – or they do know, but are too embarrassed to admit it.

Fact 2:  Low Billables May Reflect Lifestyle Choices

The Clio report found the solos who use their system bill an overall average of 1.76 hours out of an 8 hour day or 22%.  Yet without more information on the assumptions underlying these findings, most significantly, whether it was reasonable  to assume that solos work an 8-hour day/40-hour workweek? Without that critical information, it’s hard to pinpoint an explanation for the seemingly low daily-output by solos.  True, as Clio suggests, the number may reflect inefficiency – but it could just as easily reflect lack of sufficient work or a lifestyle choice. Without context, we simply don’t know.

Take my own personal experience. Back when my girls were young and I worked part-time  – pulling out an 8-10 hour billable week was a huge accomplishment. Today, not so much. Thus, if Clio’s user base has a disproportionate number of part-time lawyers or lawyers working on an contract basis for a firm (which I suspect is true since the cloud facilitates those types of arrangements), these users’ intermittent schedules would skew the average, daily billable hours for all lawyers towards the low end.

In addition to working part-time for family reasons, many solo lawyers also enjoy the flexibility of a lifestyle practices, where they earn as much or as little as they need to sustain their desired lifestyle.  Some solos may work full throttle six or eight months of the year, putting in 20 hour billable weeks but take it easy the remainder, while others may work 3-day weeks and devote the remaining time to a hobby or another business.  Including the billable hours of “lifestyle” solos into the overall mix also skews the overall averages down as well.

Fact 3: Inefficiencies are the Least Likely Explanation for the Low Number of Billable Hours

What’s worse than lack of context for Report’s factual findings, is the preliminary conclusion that the reason for solos’ low billable hours is that they simply are inefficient.  Huh? Although a 1.76 hour billable work day may bring to mind visions of a lawyer bogged down nights and weekends tending to administrivia (that could otherwise be delegated), that same number just as easily evokes an image of highly efficient practitioner who delegates work to associates or through  outsourcing  and earns a profit off the work that they’re doing.

The Clio data contains another bias in this regard. My guess is that most Clio users (as well as lawyers using other cloud-based LPM platforms) tend to be younger attorneys and/or newer solos. Many of the solos I know locally who are in their late 50’s to early 70’s and operate successful practices made a significant investment in customizing desk-top law practice management systems more “bespoke” than what they can get in the cloud and aren’t likely to make the change in the twilight years of their practice.  At the same time, this segment of the profession includes some of the higher earners due to more years of practice and more time with childrearing obligations in the rear window. If you factor in these other solos who are not Clio users, my guess is that the daily billable average would double.

Finally, there’s a darker explanation for the low billables for solos that Clio completely ignores: the fact that for many solos, the work just isn’t there. This theory is corroborated by the results of a recent Above the Law survey showing that many solos are just scraping by and further reinforced by the 80 percent realization rate (which actually, isn’t awful). After all, if clients aren’t paying their bills, it suggests that they lack the money, which in turn suggests that maybe, a lawyer shouldn’t have taken the case to begin with but did so because he really needed the work.

At a lavish conference like Clio Con, that many solos struggle is a phenomenon easy to overlook. At the same time, it’s a real problem and one that our profession needs to address if we are to  keep solo practice sustainable.  Pretending that solos aren’t billing many hours because they’re inefficient rather than because their service is in low demand is not only non-responsive to the real problem, but is insensitive and cruel – even if completely unintentional (side note: I know that Clio and other LPM providers in this space really do care about and support solos, far more than the bar associations ever did).

Fact 5: Even if Inefficiencies Account for Low Billables, That’s Partly the Nature of Legal Practice

If “inefficiency” in the context of law practice is defined as time spent not billing, is that necessarily a negative — as the Clio report seems to suggest? What I mean, is that in many higher paying fields, there’s a lot of work that’s done “off the clock” that nevertheless, is a key component of one’s ability to command the big bucks.

Therefore, even if solos are only working 2 hours a day, that doesn’t mean that they are spending the remaining 30 hours on administrative tasks that the lawyer could easily pawn off on someone else. More likely, the time goes to marketing – bar networking events, blogging, writing articles, and maybe even serving on a nonprofit board  — or continuing education, whether formal CLE or just reading case digests to keep current. None of these activities can be delegated, but they’re absolutely vital to bringing in business and charging higher rates.  Indeed, it’s as result of these activities, that even the average lawyer can net between $77,100 to $82,000 (see calculations in the paragraph below) or $37 – $39 per hour while working two hours a day, while a minimum wage worker, functioning at full capacity barely brings home $25k a year. My point is that efficiency isn’t everything.

Fact 6: Data on Hours Billed Is Meaningless Without Knowing Corresponding Rates

The Clio Report overlooks other important piece of data: the relationship between the 1.76 hours billed and the rates charged. Without knowing more, it’s tough to assess whether the 1.76-hour a day lawyer is struggling.

So let’s take a look at rates. The Clio Report also collected data on billable rates, finding that the average rate across the board for all Clio users was $232/hour; D.C. lawyers charge most at $281/hr   while lawyers in Iowa are least costly at $145/hour. Let’s take the case of an average D.C. lawyer, billing 1.76 hours/day at $281/hour. That’s a gross haul of $2472/week or $128,585/year, assuming a 52-week work calendar (I’m guessing that the 1.76 hrs/day didn’t factor in any time off, which is another reason why it’s so low).  Even factoring in an 80 percent realization rate, the solo still grosses $102,868. As for net, it’s reasonable to assume that solo without staff probably spends 20 percent of gross (here, about $20k), so solo’s pre-tax earnings come to around $82,868/year (using the $231/hour Clio national average, the number is $96,096 gross, $77,100 net).

Granted, $83k represents a tiny fraction of a starting biglaw salary, but it’s on par with a federal government salary for an attorney with 2-3 years of experience ($85,000) or that of a staff attorney at the D.C. Public Defenders’ Office (between $76, -$83k). And keep in mind that the solo has far more flexibility than an attorney employed at a firm or government agency.

Moreover, I’m just using the averages here, which as I theorized earlier, are skewed by Clio’s large proportion of younger lawyers and new solos and do not fully reflect the experience of a solo ten or more years out. Even conservatively, solos in the “more experienced” category can probably bill and collect an average of 10-15 hours a week (a fact corroborated in this discussion  on Solosez) and charge around $300/hour for a gross take ranging from  $150,000/low and $234,000/high, or net of $120,000/low or $188,000/high. Which is nothing to sneeze at.

The Clio Report Shows the Danger of Facts Out of Context

I can appreciate Clio’s excitement about the findings gleaned from its Legal Trends Report, and its desire to get some buzz going by dropping a few advance bread crumbs to tantalize its audience – and I’m sure that the full report will answer some of my questions.  But for now, the blockbuster numbers –1.76 hours! or solos bill just 22% of their total time worked will reverberate throughout the legal community, reemerging over the next 2 years in every Law Ignite Talk and bar presentation on the speaker circuit, blocking real conversation about what those numbers really mean for the future of solo practice.

 

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