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As law firms continue to invest heavily in new technologies and, in turn, rethink how they price their services, they should avoid charging for the use of new platforms, which Warren Kalinko says will be viewed as “just a tool of the trade” by clients.
Speaking recently on an instalment of Legal Firesides, produced exclusively for members of Lawyers Weekly Premium, Keypoint Law chief executive Warren Kalinko discussed how his firm may soon be one of the biggest in the country by partner numbers, how and why the traditional partnership model needs upending, and how AI is accelerating certain trends in the professional services marketplace.
In the same conversation, Kalinko reflected on the risk of frustrating clients and undermining confidence in pricing models if law firms seek to pass the cost of AI subscriptions directly, and how the profession is approaching a fundamental shift away from the traditional billable hour.
As firms continue to roll out generative AI tools across their practices, the question of how to recover the cost of software licences has become a growing issue for the legal profession. At the same time, AI-driven efficiencies are placing increased pressure on hourly billing by reducing the time required to complete many legal tasks.
Kalinko said those twin pressures make it increasingly clear that legal pricing models will need to evolve.
“AI costs are cutting into firms’ margins because we’re all paying licence fees for these products,” he said.
“At the same time, to the extent AI is reducing the hours required through greater efficiency, it’s reducing revenue if you’re sticking to the traditional hourly rate model. It’s obvious to most observers that the pricing model has to change.”
Rather than viewing AI as a threat, Kalinko said firms should see the technology as an opportunity to accelerate the profession’s transition towards value-based and fixed-fee pricing.
“I think it’s going to mean that law firms will move to value billing and fixed-price billing, which is something we’ve been doing really since the start,” he said.
“To the extent you get your pricing right and you can do the work using efficient tools, there’s still the kind of margin that one would want to maintain in that legal work. I don’t think it’s going to reduce the profitability of legal services. In fact, I think the opposite. The AI revolution is going to be like a shot in the arm for the legal profession. It’s going to generate a significant amount of new work for lawyers.”
Kalinko was equally firm on whether firms should separately itemise AI costs on client invoices, arguing clients are unlikely to view technology subscriptions differently from any other business expense.
“I don’t think clients would accept that,” he said.
“They would see it as part of the overhead. In the same way you don’t pass on the cost of your laptop, or your Thomson Reuters, LexisNexis, or Wolters Kluwer subscriptions, AI is simply becoming another tool of the trade. I think clients will be annoyed by firms trying to pass those costs on.”
Instead, he said firms should ensure technology costs are reflected within their overall pricing strategy rather than appearing as an additional charge.
“Lawyers have to become more sophisticated with pricing and make sure they’re recovering all of their costs, including AI licensing fees, in the pricing they’re charging customers,” Kalinko said.
Looking ahead, Kalinko expects hybrid pricing models to become increasingly common as firms seek to balance pricing certainty with the unpredictable nature of legal matters. He said legal work would increasingly fall into two categories: work that can be clearly scoped at the outset, and work that remains inherently uncertain.
“The known component of legal work can be fixed. Whether it’s preparing a draft document or a statement of claim, there’s no reason why those elements can’t be priced on a fixed-fee basis,” he said.
“The unknown component, where you’re dealing with how other parties respond or events outside your control, may still be charged on an hourly basis.”
Kalinko said those blended pricing arrangements would allow firms to offer clients greater certainty while preserving flexibility where matters become more complex.
However, he acknowledged that some practice areas, particularly litigation, will continue to rely heavily on hourly billing.
“Litigation is a little harder to deal with when it comes to fixed pricing because of the unknowns,” he said.
“Hourly-rate litigation is probably likely to continue in that particular segment of legal services for quite some time.”
As AI adoption accelerates across the profession, Kalinko’s comments underscore that law firms that successfully embed technology into their pricing models, rather than attempting to charge clients separately for it, will be best placed to protect margins and meet growing client expectations around value and pricing transparency.
The transcript of this conversation was edited slightly for publishing purposes. To watch the full conversation with Warren Kalinko, click below:
Jerome Doraisamy is the managing editor of professional services (including Lawyers Weekly, HR Leader, Accountants Daily, and Accounting Times). He is also the author of The Wellness Doctrines book series, an admitted solicitor in New South Wales, and a board director of the Minds Count Foundation.
You can email Jerome at:
