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Three Thoughts About Legal Services Pricing

The 2025 Edition of the “Report on the State of the US Legal Market,” from the Thomson Reuters Institute and the Center on Ethics and the Legal Profession at Georgetown Law, is a pleasantly comfortable variation on this longstanding publication’s familiar theme of “Large American law firms make astonishing amounts of money but would still benefit from running even slightly like actual businesses.” Receiving a new version of this report and its consistent message every January is a welcome new year’s rite of passage.

One slightly more noteworthy aspect of this year’s edition is a section whose title asks: “Does rethinking the business model mean rethinking the billable hour?” The billable hour, the report notes, has been “the organizing assumption of law firm economics” for many decades, used for evaluating lawyer performance, measuring the economic value of matters, and setting economic goals. It has buried all challengers to its dominance of legal business over the years.

Now, however, comes Generative AI to pose a brand-new challenge: the potential diminishment of the inventory of lawyer hours through the growing acceleration and automation of legal work. The report notes a recent survey in which 44% of legal professionals predicted that AI would bring about a decline in the use of billable-hour pricing models in law firms over the next five years.

I’ve written about this subject at some length, as have critics of my approach, and the best that can be said is that we’ll all find out pretty soon which (if any) of us was right. But the Report is unusually blunt, in Thomson Reuters terms, that law firms need to get serious about developing new models for pricing their work, whether because of AI or other advancing changes in legal market fundamentals.

I think this is good advice. The imminent upheaval facing the legal sector is so wide-ranging that lawyers and law firms will be forced to go back to first principles in a range of areas, including their pricing mechanisms, and come up with new theories and approaches for accomplishing those goals.

Accordingly, I’d like to suggest three considerations, none of which has anything to do with AI or even much to do with the billable hour itself, that I think will prove central to how lawyers price their services in future.

1. Certainty

Certainty is vastly underrated in legal pricing. Unlike quantum or “value,” it’s a common clear goal whose pursuit is good for both the client and the lawyer. The client benefits from knowing the ceiling of how much they’ll pay, as well as the circumstances (if any) under which that ceiling might rise or lower. The lawyer benefits not only from knowing the corresponding floor to how much they’ll make, but also from knowing that every efficiency improvement they make will increase their profit margin.

A fee doesn’t have to be entirely fixed or “guaranteed” in order to generate certainty. The goal is to make as much of the price as reliable as possible. A straightforward checklist of what the lawyer will do and what the client can expect, along with an agreement that unexpected developments will be billed at an hourly rate until more certainty can be introduced, is more than adequate for this purpose. Strive to bleed uncertainty out of all your legal pricing arrangements.

2. Adaptability

As the previous entry suggested, there’s no reason a legal matter can’t be priced in different ways at different stages of a retainer. A lawyer will always learn more about a situation the deeper they proceed into a client’s matter; risks will be better understood and unknowns will become better known. Lawyers should consider pricing arrangements that evolve as the nature of the issue they’ve been retained to address evolves as well.

For instance, a retainer could begin “by default” with a billable-hour arrangement, but with an agreement that as the facts of the matter begin to resolve more clearly, the lawyer will convert the appropriate parts of their work to a fixed fee to address those related aspects. Equally, a high-certainty price originally set for what appeared to be a simple matter can be temporarily converted to hourly rates if and as reality unfolds differently. Involve the client at every step of these evolutions in either direction.

3. Value

I would caution against over-prioritizing “value” in setting price, because (a) the amount of time and effort required at the outset to identify the fair value of a service simply won’t be practical in real-world conditions, and (b) the likelihood that both parties value things equally will be very low anyway. Lawyers, properly, value their time and their hard-earned expertise; clients famously do not care much about either of these, at least not once the lawyer has been engaged.

If you really want to incorporate “client value” into your pricing system, I suggest you use the three aspects of a legal service that clients actually do care about: the outcome they achieve, their experience in arriving at that outcome, and the relationship with the lawyer throughout the retainer. If the lawyer wants to set a fee that incorporates bonuses or penalties corresponding to pre-set criteria for each of these elements — calculated with the lawyer’s expected costs as a baseline — go right ahead.

Obviously, the pre-condition for any price a lawyer sets has to be a crystal-clear understanding of the lawyer’s costs of doing business. But most of those costs — rent, overhead, staff salaries, associate salaries, professional fees — are knowable in advance, and the rest are disbursements that rarely add up to much. Once you’ve accounted for your costs, everything else is profit. Cost-plus pricing (e.g., the billable hour) muddies these waters and should be avoided for that reason.

Pricing shouldn’t be a huge hassle in legal services. Generally, the more you complicate the issue, the less good you’re doing yourself. Focus on certainty and adaptability, and incorporate value to the specific client as is practical and appropriate. Beyond that, don’t sweat it so much.

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