As law firms struggle to adapt their billing models in response to AI and client pressure, legal tech companies have an unprecedented opportunity to facilitate this transition. With 73% of firms already offering alternative billing arrangements but many lacking the tools to make them profitable, the market is primed for solutions that bridge the gap between traditional hourly billing and new value-based models.
The greatest barrier to alternative fee arrangements is uncertainty about profitability. Legal tech companies should develop:
As William Woodford notes, firms need to "leverage data analytics to determine how much time each task takes, anticipating variations" and "harness the wealth of data accumulated from past projects" to "inform their pricing strategies, optimize resource allocation, and identify opportunities for efficiency gain."
In-house teams are increasingly using basic AI tools like ChatGPT to draft documents before sending them to their law firms. Smart firms will want to capture this market by offering their own self-service options.
Legal tech companies should develop:
Rhys Hodkinson describes how forward-thinking firms are creating "more of a mechanism whereby people can come in using large language models that are fine-tuned around our proprietary data to be able to self-serve on a lot of these low-value tasks."
Rather than just automating routine tasks, legal tech should focus on augmenting lawyers' capabilities for the strategic work that will continue to command premium rates.
Develop tools that:
The goal is not to replace lawyers but to transform how they deliver value. As one article notes, "AI, while disruptive, would be a complementary technology to legal professionals rather than a replacement for them."
Most firms won't switch billing models overnight. They need tools that help them manage a controlled evolution:
As Gaby Isturiz notes in "AI & The Billable Hour," clients will use existing standards "to manage quality, costs, and outcomes more tightly" and "coding billable tasks, activities, and expenses—including duration and price—will become more streamlined."
The research shows different levels of readiness for billing innovation:
Successful products must solve problems for both law firms and their clients:
Work with forward-thinking firms like those mentioned by BT Group to create case studies and reference accounts. As "Alternative Billing Goes Mainstream" note, some firms are already "willing to negotiate billing options with their clients."
Frame your solutions in terms of profitability rather than just efficiency. As Kerbis notes, "once firms stop billing by the hour, AI will increase their bottom line, as there's an inverse relationship with time and money as soon as firms use alternative billing methods."
The articles show a legal industry at an inflection point. The firms that successfully navigate this transition will emerge stronger, with pricing models aligned to both client needs and the realities of AI-enhanced legal work. Legal tech companies that provide the tools to enable this transition will not only capture market share but help shape the future of legal services delivery.
As Robert Ambrogi stated, "It is inevitable that GenAI will reshape firms' business models in fundamental ways." Legal tech companies that strategically position themselves as facilitators of this transformation will find themselves at the center of a rapidly evolving market opportunity.