As more lawyers begin to lean on generative AI-driven tools, there is a rising question about how this might impact law firm pricing models.
Legal workflows and deliverables that previously took multiple days to complete — such as due diligence reviews that involve reading heaps of contracts and flagging any potential issues — can now be crossed off in a matter of hours thanks to technologies like next-gen search, knowledge graphs or generative AI. Do these new technology-enabled time savings present a conundrum for lawyers, who have primarily built their practices around the billable hour?
If so, how can we expect pricing models to shift — or not shift — over the next decade?
The Billable Hour Is Built to Last, But There’s Room for Other Pricing Models
Although technological change is afoot, it’s unlikely that the billable hour will disappear from legal work anytime soon for several reasons.
First, change takes time. More importantly, there needs to be an incentive to change, and clients’ pressure to adopt new ways of working is not consistent.
This is largely a reflection of how reactive much legal work is; when the client has a problem, they call their lawyer because they need a solution yesterday. These clients are less concerned with what kind of fee arrangement is in place than with finding a speedy solution to their problem.
The upshot is that the billable hour will hang around for quite some time, alongside other law firm pricing models. The use of new fee arrangements will come into play — including fixed-fee arrangements and other types of value-based pricing — for certain types of work, especially for tasks and workflows that leverage AI.
AI for Repetitive Tasks, Lawyers for the High-Value Work
AI works best when leveraged for repetitive, high-volume pieces of work. Our earlier example of a due diligence review is a prime case in point: AI can scour hundreds upon hundreds of contracts without ever getting bored, and it can deliver results with the same level of accuracy as a legal professional in a fraction of the time.
A fixed-fee or flat-fee pricing makes sense for this type of work. Leveraging AI for these sorts of tasks also frees up the lawyers to focus on higher-value activities: analyzing the data and what it means, and then providing counsel and advising the client on the best way forward.
Law firms should bill this type of strategic high-end work by the hour or through some other arrangement that is fundamentally based on time. This pricing model accounts for any uncertainty around how much time the task at hand will require while also accounting for the fact that it is the type of high-value work that AI can’t yet perform.
A brief analogy is useful here. Picture a sausage factory that has purchased machinery that will enable it to start mass-producing sausages rather than producing them by hand.
This new whizbang technology should, in theory, make the sausages less expensive for customers because of the efficiencies it enables for the company. It would be odd for the company to use the cost of the machinery as a justification for raising the price of the sausage.
Likewise, legal clients are probably not keen to see a line item for “AI usage” that allows lawyers to charge more for their services — unless, of course, that investment enables them to innovate, evolve their offerings, tackle certain legal workflows much more quickly and cost-effectively, and improve what business-as-usual looks like.
Use a Blend of Pricing Models
Ultimately, lawyers will determine which areas of work they want to use AI for, and these areas may be well suited for fixed-fee pricing. However, plenty of more “strategic” work still needs to be tackled, which will likely benefit from utilizing more traditional pricing models like the billable hour.
An evolutionary path forward with a blend of pricing models is the best bet for lawyers —embracing AI in the areas where it makes the most sense while still providing the high-end, highly strategic counsel that is their calling card. This way, new technologies like generative AI don’t present a pricing conundrum so much as a path forward for how lawyers can get work done and deliver the best outcomes.
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