Pricing in the Age of AI
Eat or Be Eaten
Lions that act like kittens get eaten. Law firms are the lions of the legal world, yet many are behaving like kittens—and if they continue, they’ll meet the same fate.
According to recent research by Deloitte, only 6% of legal departments feel they benefit from their law firms’ use of technology, while 70% expect faster turnaround times and cost savings. Despite this, many law firms are cautiously experimenting with technology while clinging to an outdated business model. As a result, companies like ASML, who fully grasp the transformative power of technology, are taking decisive action.
We recently renegotiated all our terms and conditions with our preferred law firms, and included a clause in our contract that they have to pass on savings they generate from generative AI.
Sandrine Auffret, Chief Legal Counsel ASML
Should firms agree to these terms?
Would a lion? Consider a simple scenario: A client needs to review 500 lease agreements for the presence of specific clauses, pricing details, and contract end dates as part of a due diligence project. Normally, a team of 5 junior associates would spend 5 days on this task, costing the client €24000. But with modern technology, specifically a large language model (LLM), this task can now be automated. After some tinkering and testing, it can be completed within a few hours, delivering equal or better accuracy than manual review.
What should the law firm charge?
Most lawyers tell me they are transparent with clients, highlighting how technology has saved the client €23500, billing only for the few hours spent. The client is pleased, loyalty is strengthened, and the firm feels proud of adopting innovation. But what if the firm instead said, “We can deliver this today for €2400”? Wouldn’t the client be equally satisfied?
You might think, "What’s the difference between €500 and €2400?" It matters—a lot. As technology handles more tasks, law firms must adapt to maintain profitability. If you break it down, €1200 per hour for tech-driven work beats €250 per hour billed by traditional means. And as more work shifts from law firms to in-house legal teams who are also embracing technology, maximizing the value of each billable hour becomes critical to sustaining your business.
The truth is, speed and accuracy are valuable, and clients are willing to pay for that value. Investing in the right software, learning its capabilities, and leveraging it for clients represents significant value creation. Law firms should reflect that in their pricing, ensuring they recoup investments and communicate the true worth of their services.