One threat we see in our in-house research for law firm profitability is that AI-enabled in-house legal teams are completing more work internally which previously would have been sent to firms. This may mean that some law firms are quietly losing work without realising. A large in-house team of over 3000 lawyers recently told us that as part of their law firm engagement process, before any work is sent to external firms, the in-house lawyers must be able to show that they have attempted to use AI to resolve the issue. Another team at a UK-headquartered energy business told us it was already using law firms less as its lawyers are able to complete work faster internally using AI. The area where they have started to give more work to some law firms is in the co-creation of digital tools. Law firms that can adapt to these new client demands and price these offerings will put themselves ahead of the curve. Clients also have to be willing to pay for these services which have often been delivered as value-adds.
As BigHand reports, AFAs and value-based pricing models are on the rise. Forward-thinking law firms are experimenting with new services and fee arrangements like subscription services or pay-per-use offerings. For most firms though, these are on the horizon or aspirational. Even for the firms with these new offerings, they currently make up a small percentage of the firms’ overall revenues. Many firms are preparing their lawyers for this “tipping point” which BigHand identifies in its research by running training days which encourage partners to design and pitch new tech-enabled services. Lawyers are encouraged to think through the pricing model as well as the resources they would need to deliver these services. This feels like positive progress on the back of BigHand’s finding that only 32% of firms are currently offering targeted development programs to help lawyers build confidence in commercial conversations and opportunity spotting.
Law firms will need to think about how they measure and communicate the economic benefit of AI to clients. One way we see firms doing this already is using AI to make sure they stay under billable hours caps while some large firms told RSGI that thanks to AI, they’re able to take on work which previously would have been unprofitable, for example more mid-tier transactional work. This response is unsurprising given that BigHand’s data shows 29% of firms reporting faster task completion, and 34% citing faster matter throughput thanks to AI. Both law firms and in-house teams tell us that AI has been a useful door opener for conversations around new pricing models. Both say there has been a benefit of having technology experts in the room alongside the lawyers to really understand what is possible and how to price it.
