Automation forces law and accounting firms to rethink pricing
Artificial intelligence is poised to disrupt the cornerstone of white-collar billing: the billable hour. For law firms, audit practices, and professional services groups, this shift poses a direct challenge to revenue models built on charging clients for time.
Firms like Kirkland & Ellis and Quinn Emanuel can currently bill partners at rates approaching $3,000 per hour, while even junior attorneys can generate fees of $400 or more. According to the Thomson Reuters Institute, 82% of law firm partners’ work is still billed by the hour. But AI agents capable of autonomously drafting contracts or analyzing documents in minutes are exposing the model’s weaknesses.
Efficiency cuts revenue under time-based billing
AI increases productivity, but paradoxically reduces revenue under hourly billing. The American Bar Association confirms that lawyers can only charge for time spent—not time saved—meaning that faster AI-assisted tasks yield lower invoices. Goldman Sachs estimates up to 44% of U.S. legal tasks could be automated.
Despite the productivity gains, implementation won’t be cheap. Only a third of accounting firms surveyed by Thomson Reuters believe they can pass AI investment costs onto clients. That leaves firms grappling with higher costs and shrinking billable hours simultaneously.
Rethinking the workforce and business model
Some firms may reduce junior headcount, replacing them with AI tools that do basic work. While senior partners can still justify premium fees for their experience, the traditional pyramid structure may be at risk. Yet firms still need young talent to grow future leadership, and AI’s reliability remains uncertain.
Alternatively, firms could pivot away from the billable hour. Consulting giants like McKinsey and Bain already use flat project fees tied to outcomes. Allen & Overy’s Aosphere platform adopted a subscription-based legal service model as early as 2002, eschewing timesheets altogether. In 2023, private equity backed the model with an undisclosed investment.
Margins under pressure as automation grows
The core issue is that AI commodifies routine work. Law firms historically charged clients three times a junior’s salary to cover overhead and profits. But applying the same markup to software may provoke backlash. Why should clients pay a premium for tools they could buy themselves?
Firms face a dilemma: adapt their pricing models or risk eroding their value proposition. Automating tasks is inevitable. Charging for them as if they were human hours may not be.
