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2022 Law Firm Pricing Trends: AFAs Go Mainstream as Technology Improves Matter Management

The law firm LPM function continues to grow as firms add more resources to improve matter monitoring and tracking, but lawyers are still trying to figure out how to organize and manage the ongoing flow of work. Constantly changing billing requirements demanded by savvy clients is one of the main factors in this challenge. As AFAs take hold, firms can use cloud-based technology to track and monitor matters, gaining the transparency and visibility they need to support future law firm pricing tasks.

Providing Predictable Pricing

In Bloomberg Law’s 2021 Law Operations Survey, 85% of firms reported using AFA-based flat fees because clients demanded it. It follows reason that clients would prefer knowing their legal costs upfront. Law firm pricing teams prefer it, too: 33% of those surveyed said cost/revenue certainty was another top reason for employing AFAs.

This law firm pricing trend is consistent with what we are seeing from our clients. In 2021, we saw hourly and fixed/capped fees split about 50-50. Firms are actively monitoring a growing number of matters each year. With these demands for increased matter monitoring, we’re seeing wider adoption of technology solutions coupled with expanding LPM teams.

Although this growth had been apparent, we’re seeing AFAs move from alternative to mainstream. No longer just a differentiating strategy to win new business or to simply increase profitability, AFAs have become a standard that clients demand from their law firm pricing teams.

The bottom line is that today’s law firms and clients want to agree to a mutually beneficial outcome. These types of fee arrangements offer improved transparency for clients as well as better underlying visibility for the firm’s LPM team to analyze the workflows behind these fee arrangements using applied AI technology. Firms gain interesting insights into ways to improve matter monitoring via key performance indicators, such as margin and realization. This visibility helps firms avoid overengineering processes — as has been done in the past; instead, firms can streamline workflows using data analytics and directional information from past matters to get them moving in the right direction. The modern law firm pricing team needs to offer accuracy and predictability for clients and provide strong analytics for the firm.

Asking for Predictability

Clients want to know what they can expect from their law firm during the progress of each matter. They want visibility into the details and to understand how they’ll affect downstream law firm pricing and ensure billing compliance. For example, if a client wants to add three more depositions, will it shorten future phases? Clients are asking for detailed refinements in their matters, which can strongly improve the entire client experience.

With much of the world working remotely, improving lines of communication with clients via regular status updates has become easier. No longer do firms need to hold big client meetings in city-center office towers. Matter monitoring can take the form of an automated progress report updated by the matter’s LPM contact, with any client questions escalated to the lead lawyer. Although these touchpoints may not be as personal as they were before, they can happen more frequently because they don’t require travel to the client site. Some law firms are rebranding all of their billing specialists as client service representatives, because they now support a more client-focused, tactical mindset for their law firm pricing tasks.

Changing the Face of Law Firm Pricing

No one — client or lawyer — wants to enter into an ambiguous matter. From the firm side, using AI-based tools to extrapolate historic hourly and fixed-fee matters will create pressure to move law firms toward component-based pricing. This type of law firm pricing benefits both clients and firms because it provides increased confidence in the estimate. Using these tools, firms can review hundreds of previous matters to create specific, highly accurate budgets.

In the next evolution, firms will need to negotiate bigger tranches of business. Large corporations have been dropping the large number of firms on their panels, moving toward longer-term, higher-volume relationships with fewer firms that better understand their business. The global pandemic has accelerated this growing change to the legal industry.

As business stratifies in this way, deploying applied AI tools will become even more important for matter monitoring. Firms will need to maintain deeper relationships with their clients, truly understanding their marketplace needs. Using tools that quickly and accurately provide business intelligence on clients can help firms create a strong long-term working relationship in various ways, including improved law firm pricing.

Leaning on AI Technology

Applied legal AI serves as a force multiplier for reviewing data trends and identifying similarities that can be leveraged to support common matter types. You can start to refine your business by analyzing similar previous matters to gain directional guidance on what works well. By using technology to its fullest capability, you can take a large data set and look for trends that you weren’t necessarily expecting. Although applied AI isn’t a silver bullet, it can continuously refine and augment your data to find trends and hidden factors that can really propel your firm’s success.

Firms must not be myopic. They should have a diligent process for gathering law firm pricing information and aggregating it through AI-based business analytics. Firms have a massive amount of data at their disposal; applied AI can sift through this data to help you truly understand what it takes to move tens of thousands of matters from baseline profitability to true growth.

Our product roadmaps for Intapp Pricing follow these trends. We’re focusing on the simplicity of creating and maintaining budgets and matter monitoring for a strong user experience that gets lawyers more involved. We want to help lawyers easily create a budget and track it in just a few clicks.