Don’t wait for GenAI to kill the billable hour - Why Moving Away from the Billable Hour is the Future of Legal Practice

This article was originally posted on the Centre for Legal Innovation's website.  You can read it here.

Insights from the CLI Webinar on the Impact of GenAI

In a recent webinar hosted by the Centre for Legal Innovation (CLI), I really enjoyed the discussion we had on whether Generative AI (GenAI) will kill the billable hour. The session, expertly moderated by Terri Mottershead, featured myself and the incredible Melissa Lyon and Tessa van Duyn.

We explored the evolving landscape of legal billing and the compelling reasons for transitioning away from the traditional billable hour model. The discussion highlighted that while GenAI is a catalyst for change, the move away from billable hours doesn’t need GenAI to force it. It should be driven by the inherent benefits to both lawyers and their clients.

While there is a focus on law firms needing to make the change from billable hours, we agreed that clients have an important role to play in this too. They can push the firms to move faster.

While you need to listen to the whole video/podcast to get all the nuggets of wisdom, some of the key points are summarised below.

1. The Panellists and Their Perspectives

The panel brought together diverse insights from leading experts who have been doing things differently for many years. Melissa Lyon, as Executive Director and Experience Designer at Hive Legal, emphasised the importance of value pricing and shared her firm’s journey of adopting this model.

Tessa van Duyn, CEO and Practice Leader at Moores, discussed the transformation her firm underwent in moving away from time sheets to a more client-centric pricing model. It wasn’t easy – some clients and key people left the firm as a result.

As the Managing Director of LawHawk, I shared our experience in legal automation and the necessity of rethinking business models when integrating technology, because of the ongoing value it delivers over the longer term. When we incorporated technology into our solutions, we had no choice but to evolve our business model.

While we have very different backgrounds, there was so much in common, and we all feel good about having made the change.

2. The Case Against the Billable Hour

Our discussion began – and continued throughout - with the core issues of the billable hour model. Traditionally, law firms have measured success by hours billed, equating time spent with value delivered. However, this approach is increasingly problematic as GenAI and other technologies enable faster, more efficient work and the capacity to replace many tasks that lawyers currently profitably do under the billable hour.

The panel all agreed that relying on billable hours discourages efficiency and innovation, as firms may be reluctant to adopt technology that reduces billable time.

Technology powered solutions are particularly difficult under a billable hour model. If built well, they will continue to work and deliver value over the long-term. Having fixed the problem closer to the source, it limits the need for repeat work.

3. The Shift to Value-Based Pricing

One of the primary alternatives to the billable hour discussed was value-based pricing. This model focuses on the value delivered to the client rather than the time spent on a task.

Melissa highlighted that value pricing encourages firms to be more efficient and client-focused. By removing the emphasis on time, firms can better align their services with client needs and outcomes, fostering stronger client relationships and greater satisfaction.

4. Subscription Models and Fixed Fees

We also explored the potential of subscription models and fixed fees.

Subscription models offer clients predictable costs and firms recurring revenue, which aligns interests and promotes long-term partnerships. It facilitates ongoing support, even in areas that traditionally wouldn’t be thought of as suited for subscription, such as estate planning. I shared an example of what our customer, Cookman Law, are doing to offer “memberships” to their estate planning clients. From a recent email, they say:

Benefits of Membership Include 📋💼:

• 📅 Annual Review Sessions with our legal team
• ⚖️ Attorney office hours once a month – ask your questions and learn about pertinent topics
• 🔄 Partial trust amendments when family or financial dynamics change
• 💰 Funding check-ins and help with beneficiary forms
• 👨‍👩‍👧‍👦 Family care meetings to educate your trustee or beneficiaries
• 💼📊 Collaboration with your financial advisor or CPA
• 💸Discounts on future legal services for you and your loved ones
• 💻 Access to our secure digital estate planning portal
• 📜Legal updates on tax and public benefit laws that could impact your plan

That’s a lot of benefits for clients that they won’t get from many other law firms!

Fixed fees provide certainty and transparency, allowing firms to scope work accurately and manage client expectations effectively.

Both models incentivise firms to deliver high-quality, efficient services and to deliver more value.

5. The Role of GenAI

While GenAI is not the sole reason for abandoning the billable hour, it is a significant driver.

The technology’s ability to perform tasks more quickly and accurately than humans challenges the traditional time-based billing method.

Instead of reducing prices simply because AI cuts down on hours, firms should consider the value of the outcomes generated by AI combined with the firm’s unique attributes and how they can help their clients more, and share in the value they create.

6. Challenges and Transformations

Transitioning away from the billable hour is not without challenges.

Tessa stressed the importance of mindset and cultural change within firms. Shifting from time-based billing requires a fundamental transformation in how firms operate, measure success, and reward their employees. This transformation involves rethinking performance metrics, career progression, and remuneration structures to focus on value and outcomes rather than hours worked. It is definitely not just about the technology, and everything needs to be in sync. Value pricing is a manifestation of Moores’ values. Melissa also emphasised that Hive Legal’s approach to pricing is holistic and aligns with their values – it’s much more than just a billing model.

I was able to share details of the LawX collaboration we are part of in New Zealand, which recognises that firms often need help with leadership, change management, knowledge management, marketing, automation, pricing and financial management to be able to successfully navigate changes and get the outcomes they are seeking.

7. Benefits of the New Models

Despite these challenges, the benefits of moving away from the billable hour are substantial. Value-based and subscription models align the interests of firms and their clients, fostering trust and long-term relationships.

These models also encourage innovation and efficiency, as firms are motivated to find better ways to deliver value. Firms can move away from a focus on what they do, to knowing what to do. They can be more collaborative, working with other partners to deliver broader and more valuable outcomes utilising the strengths of each partner.

Additionally, they provide greater financial predictability and stability for both firms and clients.

8. Final Thoughts

The webinar concluded with a consensus that the move away from the billable hour model is not just about adapting to technology but about creating a more sustainable and client-focused approach to legal practice. By embracing value-based pricing, fixed fees, and subscription models, law firms can enhance client satisfaction, improve efficiency, and build stronger, more profitable businesses.

For lawyers and law firms considering this shift, our advice was clear: start early, engage with your clients, and seek guidance from those who have successfully made the transition. There are many experts – like Melissa, Tessa, myself (and others involved with the CLI), and others like John Chisholm, Elani Maas and Richard Smith – who can offer a lot of hard earned wisdom on how to successfully make these changes and avoid the mistakes that others have already made.

The future of legal practice lies in delivering value, not just billing hours. GenAI will assist in helping firms move more work away from the billable hour, but there’s no reason to wait!

Check out the on-demand, free recordings of this webinar

• You’ll find the video here.
• And the podcast (The Legalpreneurs Sandbox) here.