A recalculation of effective billing rates using the concept of trimmed means

To calculate the effective billing rate of a law firm, divide the amounts of several of its representative invoices by the number of lawyer hours charged under the invoices. Law departments calculate that figure sometimes to compare it to their own fully-loaded cost per lawyer hour. The range for U.S. law departments can be something like $350 an hour outside and $215 an hour inside.

One problem, however, arises from including the law firm your department paid the most during the period. That firm may well have handled your biggest law suit or largest acquisition. Cost discipline may have been less and the firm was probably large and therefore expensive.

At the other end of the scale, your department might use a one-person firm to handle very simple kinds of specialized work, or hyper-efficient boutiques to handle workers comp questions. The effective billing rates of those lower-end providers will be as unrepresentative of your normal effective rate paid as the top-of-the-line rates for the largest matter.

A trimmed mean calculation lops off the top 2.5 percent of firms (and the bottom 2.5 percent of firms if the calculation is done for all firms). That statistical rigidity does not appeal to me. Maybe it is sufficient to exclude bills from your most expensive matter and be done with that. The point to be understood should be clear: avoid the inflationary and distorting effect of including costs that have relatively less discipline.

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