For centuries, the billable hour has been the cornerstone of the legal profession’s business model. Solicitors have diligently tracked their time in increments, a practice as deeply rooted in legal culture as precedent itself. Yet as artificial intelligence (AI) begins to compress tasks that once took hours into minutes, the legal sector faces a crucial decision: not whether to adapt its pricing model, but how to orchestrate a more sophisticated approach.
Beyond the Solo Performance
The future of legal pricing isn’t about choosing between the billable hour and a single alternative—it’s about developing a repertoire of different pricing approaches. Like an orchestra that draws upon multiple instruments to create a complete performance, modern law firms need to develop versatility in their pricing strategies.
The billable hour has survived numerous technological advances, from the digitisation of communications to automated document management. However, AI presents a fundamentally different challenge. While previous technologies merely improved efficiency around the edges of legal work, AI can compress core legal tasks from hours to minutes, forcing a complete rethinking of value delivery.
The cautionary tales of Kodak and Nokia serve as powerful reminders of what happens when companies fail to adapt their business models to technological change. Kodak, despite inventing the first digital camera, couldn’t break free from its traditional film business model. Nokia, once dominant in mobile phones, was slow to embrace the smartphone revolution. Both companies maintained their singular approach while the market demanded greater flexibility.
Creating a New Framework
Forward-thinking firms are already developing more sophisticated approaches to pricing. The most promising model emerging is a harmonious blend of different approaches. Traditional hourly rates still work well for complex advisory work, while fixed-fee packages prove effective for AI-automated services. Many firms are also adding technology licensing fees to cover their AI investments, creating a multi-dimensional revenue model that better reflects their cost structure.
Credit-based systems are gaining particular traction for routine legal services. Under this arrangement, clients purchase credit packages that can be used across different service types, providing predictability for both the firm and its clients while maintaining profitability.
Output-based pricing is proving especially effective for clearly defined deliverables like contract reviews and due diligence reports. By creating tiered pricing based on complexity and scope, firms can maintain profitability while giving clients the transparency they increasingly demand.
Value-share arrangements are emerging for specific practice areas. Success fees in litigation, gain-share models for corporate transactions, and milestone-based payment structures are all gaining acceptance. These models align the firm’s interests more closely with their clients’ while capturing the value created by AI-enhanced efficiency.
Managing the Transition
The path to new pricing models requires careful coordination. Successful firms begin by auditing their service portfolio, identifying which services are ready for new pricing approaches and which require more traditional models. They typically start with highly standardised, low-risk services for their initial fixed-fee offerings, particularly in areas where AI clearly reduces delivery time and outcomes are easily measurable.
Client transition requires careful handling. Most successful firms begin by introducing new pricing models to new clients while giving existing clients the choice between traditional and new approaches. This allows firms to refine their pricing while maintaining stability in existing relationships.
The traditional barriers to pricing innovation—cost variance, partner buy-in, and client procurement processes—require thoughtful solutions. Leading firms are developing clear scope definitions and change request processes to manage cost variance. They’re creating compensation models that reward efficiency to secure partner buy-in. And they’re working closely with client procurement teams, providing tools to compare pricing models and demonstrate the benefits of new approaches.
Looking Ahead
While the billable hour won’t disappear overnight, firms must start developing their pricing toolkit now. The key is evolution rather than revolution—gradually introducing new pricing models while maintaining profitability and client confidence. Those who wait risk finding themselves in the same position as Kodak and Nokia—watching their market share erode as more adaptable competitors emerge.
The future belongs to firms that can deploy multiple pricing approaches effectively. The most successful firms will be those that recognise different situations call for different pricing models, and who develop the flexibility to implement them successfully.
The billable hour isn’t obsolete—but it’s no longer enough on its own. Modern law firms need a coordinated approach to pricing that can adapt to different client needs and service types in an AI-enabled world. The time to start developing this approach is now, before market pressures force hasty changes.
The London Law Expo 2024 panel discussion – The Future Shape of The Billable Hour
Speakers from left to right:
Christina Blacklaws – Managing Director, Blacklaws Consulting (Stage Chairperson)
Bernard Chow – Head of Pricing, Stephenson Harwood
Dawid Kotur – Founder & CEO, Workflow