The billable hour is a legal standard that most lawyers use to simplify billing, but selecting the right rate is more than following the market rates or picking a number out of a hat. There are numerous factors that go into choosing an hourly rate that will serve your goals and satisfy your clients.
Learn more about lawyer hourly rates, the factors that affect them, and how they’re calculated.
How Are Lawyer Hours Calculated?
Lawyers who charge an hourly rate typically bill by the 10th of the hour, which is at six-minute intervals. This is standard practice for practical reasons. Billing by the minute is time-consuming and can be difficult to track, while larger increments can lead to excess “bill padding” that could result in overbilling. Accidentally overbilling a client has both ethical and could lead to an influx of write-downs, write-offs, or other discounts. Above all, overbilling can impact your firm’s reputation and client retention due to an unorganized billing process.
Six-minute increments ensure that the hours aren’t rounded up too much, and they’re simple to calculate with a billable hours chart. For example, if you work for 15 minutes at a rate of $100 per hour, the chart will show you a 0.3-time increment and $30 to bill.
Conversely, legal billing software does this for your automatically. This is more accurate than a manual billable hours chart and performs the calculations more efficiently, reducing the time spent on client billing and the risk of human error.
How Much Do Most Lawyers Charge Per Hour?
According to the National Law Journal Law Firm Billing Survey and ALM Legal Intelligence, the hourly rate for associates in the US is $370 on average. Partners averaged $604.
This can vary depending on the lawyer’s practice area, experience level, and the complexity of the case. Other factors, such as the location and size of the firm, the total caseload, travel costs, and the reputation of the lawyer can affect the hourly fee.
How Do I Determine My Hourly Rate?
Choosing an hourly rate that’s fair for you and your clients takes strategy. Here are the steps to calculate your hourly rate and ensure you’re both competitive and profitable.
Calculate Your Business Expenses
Begin with your salary and expenses. Let’s assume you want to make $150,000 salary and have non-reimbursable business expenses of $40,000. Then, if you want to earn a profit margin of 30%, you would need to bring in another $57,000.
Here is the calculation: ($150,000 + $40,000) x 30% = $57,000).
To determine your annual business cost, add the expenses together: $150,000 + $40,000 + $57,000 = $247,000. Then, divide this number by the number of billable hours for the year.
Calculate Annual Billable Hours
A year has about 260 weekdays, but about 10 of those are national holidays. The total workdays per year are around 250, and at eight hours a day, that’s around 2,000 billable hours.
You’ll also want to be mindful of vacation and sick days. If you take 15 working days off for vacation or sick time, this would bring your office hours to about 1,880.
Unfortunately, not all the time a lawyer spends in the office is billable. In fact, just over half of the time spent in the office is billable, around 60%. If you bill for that time, that brings the billable hours to 1,128.
Final Calculation
Divide the business expenses by your billable hours for the year, which is $247,000 ÷ 1,128 = $218.97 per hour.
Compare that number to the market rates for your location and practice area. You should also look at the annual salaries for lawyers across the country, particularly for your experience level and practice area. You may find that your hourly rate is significantly lower than what equivalent lawyers make.
Lawyer Hourly Rate vs. Flat Fees
Most lawyers charge in one of three ways: hourly rate fees, flat rate fees, and contingency fees. With these billing methods, the client only pays for the lawyer’s time.
The most common fee arrangement is hourly billing, which means the lawyer charges in increments of an hour spent on the client’s case.
Flat-fee billing charges a specified retainer amount for a certain type of case. Regardless of how complex the case is or how long it takes, the fee won’t change. This is common for uncontested divorces, immigration, patents, wills, trademarks, and bankruptcy cases.
Some additional costs may be added, such as filing fees or fees to send correspondence to an opposing party.
The billable hour is still a common model, but if you practice in an area that has alternative fee arrangements like flat-fee pricing, you may want to consider this structure.
How to Use Law Firm Software for Billable Hours
Determining your hourly rate is one thing — it’s how you track your time efficiently and accurately to get more out of the billable hours you work. Manual time tracking can be error-prone and time-consuming, wasting time that you could be spending on client cases.
Law practice management software like PracticePanther simplifies your time tracking, invoicing, and payment processing in an all-in-one platform. You can run multiple timers across the platform, on your laptop, or mobile device to track your hours in real time. With the mobile app, you can start and stop your timer easily from anywhere.
Custom time entries allow you to organize your hours by calendar events, tasks, emails, text messages, notes, and phone calls to capture hours you may have missed. It’s simple to adjust or add time entries.
If you’re working across several practice areas with different billing rates, PracticePanther’s legal case management software lets you assign custom rates by user, activity, matter, or contact. You can also automatically round billing increments as needed.
Get a Handle on Your Hourly Billing
Whether you’re calculating your hourly rate for the first time or considering adjusting your existing rate, it’s about more than deciding how much you should make per hour or what the market will bear. Once you know what your time is worth, you can set a fair, competitive hourly rate and maximize your time with an efficient timekeeping and billing process using PracticePanther.
