September 27, 2023

What Will Artificial Intelligence Do To Hourly Billing In Law Firms?

Nancy Myrland - Myrland Marketing & Social Media

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Nancy Myrland - Myrland Marketing & Social Media

It’s time to discuss the impact of artificial intelligence on the traditional billing structure in the legal profession.

With the rise of AI and Generative AI technology and its potential to streamline tasks and matters, it is crucial for lawyers to consider alternative billing models such as value-based billing. I will discuss what leads me to think now is the time, as well as how embracing these changes can lead to stronger client relationships and a competitive edge.

Your time is valuable, so let’s discuss.

Transcript (with a tiny bit of help because I can’t look at one big block of text!)

In today’s legal landscape, with everything that’s going on with artificial intelligence and increased technology, as well as competition, and the economy being in a little bit of flux, I think it’s safe to say that change is the only constant. I know we’ve been saying that for a long time, and it can apply at just about any time, but there is so much going on right now that I think we have to talk about what happens when services become more of a commodity, and if the use of artificial intelligence is making tasks or matters not take as long as they used to, what happens to the traditional billing structure?

Well, let’s talk about that.

Welcome To Legal Marketing Minutes

Well, welcome to Legal Marketing Minutes, where I share short bursts of current marketing news and advice. I’m your host, Nancy Myrland. If we haven’t met, I’m a Marketing and Business Development Advisor, and I specialize in content, social, and digital media for lawyers. Your time is valuable, so let’s get started, okay?

Well, in recent years, but particularly since last November 30th, 2022, when ChatGPT launched, all of a sudden artificial intelligence became more understandable to more people because we didn’t have to be coders. We didn’t have to have a fancy program. We didn’t have to rely on the IT department to develop or bring these kinds of tools to us. And even though some firms have said, “We’re not allowing you to use them yet,” they’re still being tested and they’re still being studied.

AI In Law firms Is Not New

Artificial intelligence in law firms is not new. There have been artificial intelligence practices and software and other kinds of resources that have been used for many, many years. We didn’t think about them because they just worked. Well, now we have these very easy tools in front of us, most of them under the category of Generative AI, sometimes called GenAI, which is a subset of artificial intelligence, that is a conversational tool. We ask it something, we give it something. It does a great job transforming that data into another usable format that we ask for.

All right, that was a long story made very short on what Generative AI is, but one of the things we have to talk about is what’s going to happen to this traditional billing structure that we are so accustomed to.

Why Discuss (Non) Hourly Billing Now?

Let’s pretend that there is a certain task that you do, whether it’s research, or whatever it might be, but it’s something that you’re doing when you are not with your client, yet you are in service of your client. And let’s say it used to take you 10 hours. Software now makes it quite possible that a particular task will not take nearly as much time. So in a traditional billing model, what are you going to do? Are you going to then say, hmm, this only took us five hours, or, this only took five minutes. I can only bill you for five minutes, or, gosh, what’s the appropriate amount for us to mark that up and still pass that along to the client? And, what are the ethics rules going to say about disclosing the use of artificial intelligence? At this moment, that is still undecided, so it’s time to think more seriously, if you haven’t already, and many of you already have, about alternative forms of billing and value-based billing.

Generative AI Is Already Being Used In The Legal Profession To Streamline Tasks

There is no doubt that artificial intelligence broadly, not just Generative AI, but artificial intelligence as a whole, is going to streamline routine tasks. It’s already happening. It cannot go back to where it was before. What that is going to do is free up your time to concentrate on delivering other outcomes, or adding additional value for your clients. It’s not necessarily going to kick you out of your job, or take your job away from you, or help your clients see that they don’t need you. It’s just going to help you work on additional matters or additional ways of solving your client’s problem.

The focus is still on the client. It’s important to remember that clients are seeking value from you. They’re seeking solutions. They’re not just looking for hours on an invoice, so talking about alternative billing models very much is in alignment with what clients are expecting from you. And when you can do that, then you are fostering a much stronger and a much, I would say, more enduring relationship with your clients.

Value-Based Billing As A Competitive Advantage

Also, when you think about alternative forms of billing and value-based billing, it also can give you a competitive edge because when you are able to then focus on a more robust package, if you will, in the time that you have in your schedule to take care of your client in additional, more creative ways, then why would that not be a competitive edge for you?

When you do that, all of that bundled together, obviously, is good for you. It’s good for the firm. It’s good for your practice. It’s good for revenue. So again, it’s time to talk about this and get serious.

You Already Have The Tools and The Data To Create Value-Based Pricing

And I know it sounds like it’s such a hard thing to do. And how would I even begin to come up with that? Well, it really, if you’ve done this kind of work before, or if your firm has, it really doesn’t have to be as difficult as it may sound. It may feel and probably is causing some anxiety when you think about it. But don’t forget that you already have analytics in your firm. You already have an accounting system that you can go to and say, okay, let me look at all of the clients, or even start with one client and one matter. What is the typical amount of time that I and others have spent with clients like this on a similar matter? It’s not always going to be the same. Don’t expect for this to be apples to apples at the start because there are differences between people and matters. But pull this data out of your system and ask for help doing this so that you can see what the average matter actually cost your client, what you billed for that, and what you collected for that.

Collaborate With Finance and Accounting

Gather that data, and collaborate with finance and accounting. Work closely with them. You’re going to, obviously, if you are looking at all of your colleagues on your practice team, then somebody’s going to have different billing rates than you. Somebody’s going to have collected at a different rate than you have, but you can still pull out averages.

Then what I want you to do is to say, all right, let’s say that you’re seeing a range between 20 and $40,000 for matters just like this. Then you start to look at those and say, okay, which of these looks the most like this type of matter, and this type of client, and somebody who charges per hour what I tend to charge? Then you start to say, does that feel reasonable? Is there enough value for my client if I charge that? It doesn’t matter how much time you spent or how much time you didn’t spend because you used artificial intelligence tools in your firm that are helping you do it more efficiently.

The question should be always from your client’s perspective, are they getting the value that they need, want, and expect from you as their trusted service provider?

Remember, This Is A Starting Point

So it’s not like you’re starting from scratch. If you are, for some reason, and if this is a new practice area, you can look outside your firm and get some of this data, some of this information. So obviously, there are ways, but we are talking about a starting point. I would encourage you to get started with it because clients are only getting smarter. Like artificial intelligence and generative AI, they are only getting smarter, and when they are armed with these kinds of tools in their companies, you have to know that they are going to be very, very aware, and more so as every day and every week goes on, that these tools are going to be used.

I Want To See You Get Ahead Of This

So I would much rather see you get ahead of this and start talking about these types of issues, much better now than having a client be the one that actually brings it up to you and says, “Are you using any artificial intelligence, or what’s going on here?” So I’d rather see you get ahead of it and show them that you were paying attention to it.

There’s so much more to this discussion, and I was tempted to add more, but my goal for this podcast, Legal Marketing Minutes, is that it’s always under 10 minutes. So if you want to talk about it some more, obviously, we can do that.

But it’s time to talk about value-based billing and other alternative forms of billing. You will never be sorry that you did, but you could be sorry if you don’t.

Well, that’s it for today’s Legal Marketing Minutes. Please do me a favor and let me know your thoughts about this topic. If you’re in a place where you can leave a comment, I would love to hear it, read it, see it, however you want to leave it, please do so. I always love hearing from my listeners.

Thank you so much for spending a few Legal Marketing Minutes with me. I know your time is valuable, so I appreciate you spending a few of them right here with me. Until next time, I’m Nancy Myrland. Take care.