Earlier this year, the Wall Street Journal reported that lawyers at some of the top firms in the United States charge more than $1,500 per hour. Rates are increasing at an unprecedented pace as well—top lawyers only started charging $1,000 per hour a decade ago.
Meanwhile, some lawyers charge an order of magnitude less—as little as $150 per hour.
That’s a huge gap, and when deciding on billable hourly rates as a solo or small-firm lawyer, it can be difficult to know where you fall. Those in the Am Law 100 have long had access to business intelligence to help them know when to raise their rates, but solos and small firms have not had the same privilege.
The Billable Hour Index changes that. Included in Clio’s recent Legal Trends Report, it gives solo and small firm lawyers the data insights they need to make better decisions when it comes to setting hourly rates.
What is the Billable Hour Index?
The Billable Hour Index provides a look at the average hourly billing rate for lawyers in the United States. It was created by drawing on aggregate and anonymized data from 40,000 active Clio users.
The index also features average billing rates by state and practice area, as well as real billing rates corrected for cost of living in each state.
This is the first time solo and small firm lawyers have received access to this level of data. Previously, available information was limited to reports focused on the Am Law 100 (which makes up only about 20 percent of the legal industry), or survey results, which are subject to inherent biases and are therefore less reliable.
Overall, there are several key takeaways from this section of the Legal Trends Report that you can use to make better decisions for your firm.
Key findings: How much do lawyers really make?
- The average hourly billing rate for lawyers in the United States in 2015 was $232 per hour.
- Average hourly rates are growing, but they’re only just keeping up with the overall rate of inflation.
- There was a wide disparity in billing rates by state. The District of Columbia had the highest average hourly billing rate for lawyers at $281 per hour, but Iowa, the state with the lowest average rate, came in at $129 per hour.
- Cost of living matters. Factor it in, and the hourly rate for D.C. lawyers drops to $238 per hour.
- Rates varied widely by practice area. Bankruptcy lawyers and corporate lawyers saw the highest rates, $275 and $272 per hour respectively. Meanwhile, family lawyers charged only $202 per hour on average, while criminal lawyers charged just $148 per hour.
What does the Billable Hour Index mean for you?
The thing about reliable data insights is, you can rely on them. Clio is the most popular cloud-based practice management system in the world, bar none. This means that the data insights gleaned from its user base offer a greater sample set than is available anywhere else—providing an incredibly accurate snapshot of the legal industry.
With quality data, you’ll be better positioned to answer key questions about running your firm.
Here are a few examples.
What should my hourly rate be?
If you’re starting a new law firm, or leaving Big Law to strike out on your own, how do you know how much to charge? You can ask other lawyers at networking events or over dinner, but those answers will be anecdotal at best, or completely inaccurate at their worst.
The Billable Hour Index averages rates by state and practice area, so you can confidently position yourself within a given market.
For example, if you’re a family lawyer, and you want to charge a premium rate based on your extensive experience, you can know definitively that the average rate is $202 per hour, and make your decision based on that number.
Furthermore, real hourly billing rates help dispel the myth that lawyers charge too much. The average hourly billing rate for D.C. lawyers is high, but with a high cost of living for the state, that rate is warranted.
I practice in several areas—should I charge different hourly rates?
Potentially. The average billing rate for some practice areas is much higher than for others. It might make sense to charge more based on the area of law you practice in. For example, the average rate for immigration law is much higher than the average rate for family law.
Of course, you’ll need to consider whether your clients would be receptive to such a billing model. But, having data to explain why you’re charging different rates might help explain where you’re coming from.
Should I bill hourly or use flat fees?
That depends on your practice area. The billable hour is still the dominant model for many law firms, but some practice areas are moving towards alternative fee arrangements.
According to the Billable Hour Index, the majority of immigration and criminal lawyers charge based on flat fees rather than billable hours. A not-insignificant proportion of wills and bankruptcy lawyers use flat fees as well.
If you’re practicing in those areas, it may be worth considering an alternative fee structure.
Where should I open my law firm?
If you’ve just graduated from law school, or if you’re considering a move, it’s worth knowing, definitively, what you’ll make in a given state. Some states have much higher billing rates than others.
However, to truly know where you stand, you’ll need to look at the real hourly rates included in the Billable Hour Index. These have been corrected for cost of living, and as mentioned above, high living costs can make a big difference.
For example, the District of Columbia has the highest average hourly billable rate for lawyers in the U.S., but when corrected for cost of living, the state drops to number seven. What’s the state with the highest real hourly billing rate? Nevada.
Don’t just ask yourself the questions above. Get creative, and think about different ways that you can use the Billable Hour Index to improve your business. Maybe one day you’ll need to convince new associates to move to your future office in Nevada.
The data is in your hands. You just have to use it.
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