10 Innovative Pricing Strategies for Lawyers in the AI Era

Balancing Profitability and Client Value

The legal profession is at a crossroads, with AI tools reshaping the landscape of legal services pricing. Each week, I hear of lawyers’ comments surrounding the uncertainty of running profitable legal practices now that legal work can be produced more cheaply than ever before.

Is this the death knell of the billable hour?

Whilst I’m sceptical that the billable hour is going anywhere any time soon (lawyers have lamented the billing process since the 1970s) new and emerging legal technologies are threatening disruption to standard practices. Billing is no exception to this.

Aspiring fully automated luxury lawyers are interested in how to practically price their legal services, increasing access to justice and sustaining their law firm businesses.

Here are 10 ways to price your legal services in the AI era.

Value-Based Pricing

Value-based pricing has been around longer than the billable hour. It’s a pricing model suited to some legal services better than others. Family law, commercial transactional work, and immigration all spring to mind. Here are 3 steps to value-based pricing and start testing in your practice:

1. Focus on the importance of the matter to the client,
2. Emphasise the outcome/results rather than the time spent, and
3. Consider the complexity and novelty (to the client) of the questions involved.

Test the efficacy of your pricing with market research and benchmark on the time spent on those types of matters – as a check for profitability – to make sure you have the levels right. You can use AI to assist you with this task by getting it to help you analyse previous similar matters and how much clients actually paid. Value-based pricing works well with work that is well automated with defined processes. Avoid novel and complex matters unless it is something you do often and have a good amount of data to base your pricing.

Outcome-Based Pricing or Stage-Based Pricing

This is the pricing model I am most familiar with as it was what the firms I worked in would use the most. How this was done was that certain services (such as a Tribunal appeal) were set at the agreed amount and broken down for payments at key milestones. It worked well and gave both the firm and their clients certainty. The matters never progressed until the money for the next milestone was held in Trust. Such a pricing approach will be inappropriate for speculative or research-matters where the milestones are uncertain at the time of disclosure.

Hybrid Pricing

Rather than go all in on value-based pricing or sticking to the billable unit at all costs, you can hybridise the pricing model as it suits. A lot of New Zealand law firms do this already and this usually involves setting a price at the beginning – usually an estimate based on the sparce information available at the time – and then baking-in coverage for the uncertainty. Coverage could look like extra fees or an hourly rate. This type of pricing works well for transactional work and where clients might not have a full understanding of what their needs are.

Tiered Service Packages

Also known as unbundling, offer different levels of services to suit clients’ needs and budgets. Incorporate options for factors such as urgency, time limitations, and risk. This approach works well for the types of legal work that has discrete tasks, such as legal aid and debt recovery. Consider how many update emails the client may expect and talk about how more communication will attract a higher-tier level. Allow the client to select what is important to them and price accordingly.

Productised Legal Services

This is the most standardised of the pricing models available and is only suited for the most automated and standardised of legal services. It works well for the types of firms fully prepared to embrace technology to give them the data and process needs necessary to give clients the certainty of standardised fees. Think of it like a “McDonalds Menu” (to reference Janey’s approach at JH LAW), where clients can select what they need al a carte. This works well with document-production work such as Shareholder Agreements, Wills, and basic agreements.

Transparent Pricing Calculators

Some firms have compiled pricing calculators which are used internally to calculate the fees to be billed. Make this process transparent by building a calculator into your webpage or go through the calculator with the client, so they can control the costs involved in their matter. The calculator allows the client to feel comfort from the transparency and addresses the professional requirements for estimates. You can go all out and use the calculator logics to create a Bot to provide the information in a user-friendly way. Stick with the pricing selected by the client at the time of billing, for streamlined billing and client satisfaction.

Collaborative Pricing

This one may seem obvious but it isn’t as common as one would think. Taking a collaborative pricing approach with a client is about having an honest conversation about their capacity to pay for the outcomes they expect. It draws on the agreement factor and gives you confidence to carry out the work diligently without watching the clock. This option is great for those once-on-occasion type matters where you really don’t know where to start on pricing. It may be an interesting research question or a vulnerable client. Whatever it may be, collaborative pricing can give both the lawyer and the client confidence to get the job done without the spectre of the billable hour.

Pro-tip: Combine collaborative pricing strategies with data analytics to create more certain billing tools.

Dynamic Pricing

Whilst potentially more difficult, dynamic pricing factors in the firm’s lawyers’ capacities and the market demands. What this can look like is when the firm is experiencing high demand in one area, the pricing of those legal services will increase to cater for the demand and protect the firm’s capacity. Leverage the firm’s technology to predict the times of the year various work increases and anticipate this before you land in the thick of it. A word of caution, use dynamic pricing sparingly and only to protect the firm’s quality as no one enjoys a “pricing surge”.

Experience-Based Pricing Tiers

This kind of pricing is recognisable as the “partner premium”. Pricing is determined by the level of experience and seniority of the acting lawyer. Milestones or outputs completed by junior staff will be cheaper than those completed by senior ones. Allowing a client to choose also sets their expectations at ease come billing time. This approach can be coupled with the various others in this list and is already baked-in to the billable hour pricing model. Review historical data to see the types of tasks or actions completed by junior versus senior staff, to provide more buying information to the client for them to decide. This wouldn’t include required supervision, as that would be a firm cost and professional obligation.

Market-Adjusted Pricing

Finally, regularly review and adjust your pricing. In this climate, it might be necessary to do this quarterly, but it should be done at least annually. I’ve come across firms that haven’t reviewed their pricing in 9 years! By assessing the pricing, you can cover the firm’s reasonable costs, review competitiveness and have important conversations about using more productivity tools where they’re most impactful.

Innovation Benefits

These approaches not only can address the disruption caused by AI and legal productivity tools, but they also give opportunities for lawyers to:

1.        Differentiate yourselves in a competitive market

2.        Align your interests more closely with those of your clients

3.        Improve predictability and transparency in legal costs

4.        Potentially increase profitability by focusing on efficiency and value creation, and

5.        Adapt to changing expectations and market conditions.

There may be challenges to overcome in introducing these innovative pricing strategies. These include resistance to change, lack of data, client education, and internal systems and processes. Strategies to overcome these challenges will be addressed in a future post.

By embracing new pricing strategies, lawyers can turn the technological disruption challenge into a growth opportunity, improve client relationships, and form more sustainable business models.