Pricing & Law: Is the billable hour dead?
There is a lot of discussion around how law firms will bill in the future, brought upon by the rapid pace of AI efficiency gains. The number 1 question of these firms? How will we protect our margins as AI reduces our billable hours?
It’s a fair question. The most prevalent response so far has been to increase the use of value based pricing and accept the billable hour is dying a slow death.
It makes sense, this complicated legal work, managed by experienced, highly trained legal professionals has a value to customers that shouldn’t be measured purely by the number of hours worked, especially as those hours decrease.
Another option, increase the hourly rates of senior lawyers to reflect their expertise on the critical work that can’t be done by AI, and in the worst case, decrease the headcount of juniors as they are no longer as required.
Both comfortably protect the margins of today’s legal work, and we can all go back to business as usual.
Unfortunately, AI isn’t the only threat coming to your margins. It’s your clients.
We’ve seen this in other industries. Canva1 has eaten away at the routine marketing tasks previously done by specialised professionals at hourly rates. Xero2 for accounting. This isn’t just at the consumer level.
Over 95% of Fortune 500 companies leverage Canva, and Xero’s average customer size is increasing 15% year on year.
As clients understand what is now possible with technology, they don’t simply accept higher rates and say thank you, they do it themselves.
However, this isn’t doomsday for the profession. Between 2013 and 2024, marketing agencies report headcount growth of ~35–40% and profit margin growth of ~8–12%, while accountants report headcount growth of ~20–25% and profit margin growth of ~10–15%.3
This opportunity exists in law. Only 23% of legal needs4 are currently met by the legal industry, and in litigation, over 66% of cases settle out of court with legal fees being a key reason. There is plenty more legal work to be done.
Many AI-first “law firms” are popping up globally. Garfield Law and Gale in the US, as well as Lawpath here in Australia. All offering low cost legal services with limited human intervention. This is a taste of what’s coming.
Of course, more complex matters simply don’t allow for full automation. Lawyers will always be required for due diligence in large transactions, and in litigation, lawyers will always be required to validate the evidence and explore all possible narratives. But, as AI eats into the cost of gruntwork, there is an opportunity to similarly pass these costs onto customers.
At Mary, we are consistently having conversations with firms about how to price the work of document organisation, review and fact analysis that is now taking between 50% and 90% less time.
It has now become a pattern that many forward thinking firms are now changing the conversation to focus on eliminating write-downs, increasing case velocity, and importantly case volume while maintaining or increasing headcount. They are not protecting their margins, they are increasing their client base and passing on their savings.
Those firms are preparing themselves to out compete their competitors, take more of the pie, and interestingly, figuring out what work was previously too cost-intensive to take on.
In a war on price, it may also be true that juniors taking a more strategic role earlier is a previously inaccessible weapon.
So how to price?
I believe transparency will always be the winner with clients. People don’t hate timesheets, they hate surprises and confusion. Your clients expect you to be receiving efficiency gains from AI, and if that is unclear in a value based model, they may assume the firm is capturing the windfall entirely.
The most transparent model I have seen is to disburse AI costs where possible, and charge for hours worked.
In the short term, this inevitably will lead to lower margins. But, if the goal is to compete, increase capacity, and keep clients happy, this is a winning formula.
Maybe the billable hour is alive and well?
Sources
1 Canva public newsroom
2 Xero Investor Deck FY25
3 Australian Bureau of Statistics & Jobs & Skills Australia
4 Harvard Journal of Legal Analysis & World Justice Report: Global Insights on Access to Justice
Author: Rowan McNamee, Co-Founder, Mary Technology
Mary Technology eliminates "fact chaos" for law firms by automatically sorting documents and managing case facts, producing a document index and legal-grade chronologies in minutes. Mary's Al ingests thousands of pages - PDFs, emails, scans - and extracts, links, and organises every critical document, fact, person, date, and source. The result is an interactive document index and timeline you can filter, export to Word, or share with colleagues, saving 72% of preparation time whilst slashing human error.
