As AI forces a reinvention of law firm billing models, the market will reward those firms that price by outcome, guarantee efficiency, and are transparent. The question then isn't whether to change — it's whether firms will stand on the sidelines or lead
Key insights:
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Efficiency and cost savings are expected — AI is significantly increasing efficiency and reducing costs in the legal industry, with each lawyer expecting to save 190 work-hours per year by leveraging AI, resulting in approximately $20 billion worth of work-savings in the US alone.
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Challenges to the billable hour model — The traditional billable hour model is being challenged by AI advancements, as lawyers are now able to complete tasks more efficiently and quickly, leading some law firms to explore alternative pricing models that reflect the value delivered rather than the time spent.
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Opportunities for smaller law firms — AI presents unique opportunities for smaller law firms to differentiate themselves and compete with larger firms, as AI solutions allow smaller firms to access advanced technology without significant investment and deliver innovative pricing models.
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The legal industry is undergoing a significant transformation that’s being driven by the rapid adoption of AI — a shift that is poised to redefine traditional practices, particularly the billable hour model, a cornerstone of law firm operations.
Not surprisingly, AI is anticipated to have the biggest impact on the legal industry over the next five years, with 80% of law firm survey respondents to Thomson Reuters recently published 2025 Future of Professionals report saying that they expect AI to fundamentally alter how they conduct business, especially around how law firms price, staff, and deliver legal work to their clients.
The $20 billion opportunity
Clearly, one of the most significant benefits that AI will bring to law firms is the potential for increased efficiency and cost savings. Already, almost half (47%) of law firm respondents say their firms are already experiencing at least one type of benefit from AI adoption.
And the benefits of greater efficiency could become a game-changer. On average, each lawyer expects to save 190 work-hours per year by leveraging AI tools and solutions to do work faster and more efficiently. That translates into approximately $20 billion worth of time-savings in the United States legal market alone.
Clearly, this should be seen as an opportunity. Law firms must put into action a strategy to incorporate AI into their existing systems and workflows to reap the benefits themselves and deliver greater value and service to their clients.
More importantly, by embracing AI, law firms will be able to demonstrate to their clients that they have the technological sophistication to be better partners. And when law firms can provide transparency related to the work performed, clients are more comfortable investing in the high-level strategic counsel that those firms provide.
This creates a clear opportunity for law firms to build transformational relationships with their clients and demonstrate their value beyond simply being a vendor of traditional legal services.
The end of an era? Reimagining billable hours in the age of AI
Of course, the advantages of AI don’t come without challenges as well, and the impact of AI’s advancement on the billable hour model, a long-standing practice in the legal industry, cannot be underestimated.
Many law firm leaders already are asking: As my firm embraces AI, what does it do to my billing rates and the economics of my firm? And while that’s a fair question, it may not necessarily be the right one, for two main reasons.
First, remember that $20 billion worth of time-savings the industry expects? That will be reinvested by every individual law firm, and this time-investment then can redirect lawyers to higher-value work, better client service, and a stronger focus on firm growth. In fact, law firms with a visible AI strategy are almost four times more likely to experience benefits compared to firms without any significant plans for AI adoption, according to the report.
And that is the second point — when the work that law firms are doing today can be done at a lower price point, basic economic theory kicks in and demand will go up. Indeed, many in-house legal counsel would be happy to give more work to their favored law firms if the economics are more attractive. This theory of demand expansion will more than compensate for the reform — not the repeal — of the billable hour, and the legal industry will continue to grow.
Still, the traditional billable hour still holds sway — as much as 90% of corporate legal spend on outside law firms involves hourly rates, according to our latest research. Yet, it is encouraging that a growing number of law firms are exploring alternative pricing models that reflect the value delivered rather than the time spent. And a continuation of this shift could lead to more strategic counsel and higher-value work for which clients are willing to pay a higher premium.
Small but mighty: How smaller law firms can win with AI
Another aspect of this AI-fueled challenge to the billable hour is the unique opportunities it offers smaller law firms to differentiate themselves and compete with larger firms. The availability of AI tools and solutions can allow smaller firms to access advanced technology without significant investment.
This means that smaller firms can become more nimble, embrace alternative ways of pricing and delivering legal work that might have been unimaginable to them before. In this way, AI will level the playing field and enable smaller firms to have an opportunity to expand their services and grow market share.
Already, what we’re seeing in the legal industry is that the level of usage of AI tools among lawyers at smaller law firms is even higher than that of lawyers at larger law firms, underscoring the opportunity for smaller law firms to proactively use AI to differentiate themselves not only from competitors, large and small, but in the minds of clients as well.
Law firm leaders need to take control of their firm’s future, and that means adjusting how their firm operates — including their use of the traditional billable hour model — to better reflect today’s AI-driven reality. Indeed, leaders need to recognize that embracing AI is no longer a choice, it is a necessity for success in today’s legal market.
You can download a copy of the Future of Professionals Report 2025: Actionable insights for law firm leaders here
