We have reached a point where efficiency and profitability do not always move in the same direction. This is described in BigHand’s 2026 Annual Law Firm Finance Report as “The AI Productivity and Profitability Paradox.” Let’s unpack this.
The Reality of the AI Efficiency Gap
When I look at the data in our latest Annual Law Firm Finance Report, the efficiency gains from AI are impressive:
- Tasks are being completed 29% faster
- Matter throughput is increasing by 34%.
- Internal workflows and collaboration have become 30% more streamlined.
On the surface, these figures suggest a highly successful period of legal production. However, for many firms, these improvements are not yet yielding consistent commercial value. The reason for this friction is relatively straightforward but difficult to address. Most legal business models remain tethered to the billable hour. If you complete a task 29% faster, you are essentially removing billable time from the ledger.
Our report highlights this specific challenge. While 32% of firms cite increased profitability per matter, 29% report a reduction in billable hours. Perhaps most tellingly, only 31% of firms say AI is currently supporting changes to pricing structures for AI-augmented work.
We are using modern tools while remaining within a legacy pricing framework.
Why Client Expectations are Changing the Game
Pressure extends beyond the internal finance issue. Clients are becoming much more aware of how technology should be lowering their costs or increasing the value they receive. They are no longer content with a lack of clarity regarding legal fees.
| Client Request |
% of Firms Reporting Demand |
| Greater use of technology to drive efficiencies |
37% |
| Increased financial transparency |
36% |
| Increased visibility of resourcing |
36% |
| Greater demonstration of investment value |
30% |
These expectations create a new mandate for firm leaders. You cannot simply implement a tool and assume the profit will follow. You have to be able to narrate the value of the work that was done, including the efficiencies from that tool, to the client. If a firm cannot explain why a matter cost what it did despite the use of AI, they often end up in difficult late-stage negotiations. This leads to write-downs and can also damage client relationships.
Aligning Internal Pricing Strategy with Modern Technology
I believe the internal response to these pressures is where the real strategy happens. When we asked law firms about the factors influencing their pricing strategy, the results were telling. Nearly half cited client demands for cost transparency (49%) and tech-driven efficiencies (49%) as a primary influence. At the same time, 50% of the respondents cited increased complexity or scope of work.
These factors are converging in a way that requires a new perspective. Firms are realizing that they must balance the rising complexity of legal work with the increased speed that technology provides. To bridge this gap, I often advise firms to closely examine their data foundations. If you want to change your pricing model to reflect the value of AI-augmented work, you need a precise understanding of your delivery costs.
You cannot move toward value-based pricing or fixed-fee arrangements without knowing the impact of technology on your margins. The paradox only exists as long as we use time as the sole proxy for value. When firms begin to measure their output and the quality of their results, the tension starts to dissipate.
Building a Transparent and Profitable Future
There is a massive opportunity for firms that can navigate this shift successfully. By leaning into the transparency that clients are asking for, you build a level of trust that justifies your margins. Providing visibility into how resources are used and where technology is creating shortcuts allows for a more honest commercial conversation. It moves the relationship away from a debate over minutes and toward a partnership focused on high-quality outcomes.
The path forward requires a deliberate change in how we think about the business of law. We have the tools to work faster and better than ever before. The challenge now is to align our pricing structures with that reality and get lawyers discussing the value they provide. Firms that continue to rely solely on time-based models without accounting for AI efficiency will likely see their margins contract further. Those who can articulate their value through data and transparency will be the ones who turn this productivity paradox into a competitive advantage.
For a deeper look at the data driving these changes and to see how your firm compares to industry benchmarks, I encourage you to read the full report.
