Law firms in 2025 will face a multitude of challenges that require strategic and innovative solutions. One of the most significant challenges is the rapid advancement of technology, particularly generative AI, which is already transforming legal services and client expectations. According to the most recent Report on the State of the US Legal Market, more than three-quarters of legal professionals anticipate a high or transformative impact from AI over the next five years, with 43% expecting a transformative impact. Firms are already grappling with managing those potentially transformational changes to their strategies and traditional practices.
Most central to the continued financial health of those firms is the need to develop new pricing models that reflect the value of the outcome rather than the amount of time spent. The traditional billable hour model is under increasing pressure due to changing client expectations and the efficiency gains from AI. Managing the costs associated with tech debt – which happens when decisions on technology implementation or design requires additional and growing costs over time – will also be crucial. Additionally, firms must navigate a complex landscape shaped by shifting demand and expense dynamics, with demand growth likely to weaken in 2025 compared to 2024.
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The role of generative AI in legal services
Generative AI is poised to play a significant role in the legal services industry. On average, survey respondents predict that more than half of their work will utilize new AI-powered technologies within the next five years. This shift is not just about efficiency; it also brings ethical obligations. Under model ABA rules, lawyers must ensure they bill for the actual time spent and that they do not take advantage of clients. If GenAI tools cut the time a lawyer takes to do a specific task down from, for example, ten hours to one hour, and that is generally true across the legal market, what is “customary” for that task may irrevocably change, to the detriment of that lawyer’s billable hours.
Given those concerns, the increasing efficiency brought by AI is expected to lead to a decline in the use of pricing models based on billable hours, as firms will need to develop new models that reflect the value of the work product.
Client-centric practices and value-based pricing
The legal market is witnessing a significant shift towards client-centric practices and value-based pricing. The traditional billable hour model is under increasing pressure, not just from GenAI transformation, but also driven by changing client expectations and competitive market dynamics. Clients are becoming more aware of the inefficiencies in the billable hour model and are pushing for more transparent and value-driven pricing structures. This shift requires law firms to focus on delivering outcomes that align with client needs and expectations. By adopting value-based pricing, firms can better align their services with the value they provide, leading to increased client satisfaction and loyalty.
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Generative AI for legal professionals: What to know and what to do right now
Access white paper ↗Strategies for adapting to technological changes
To adapt to technological changes, law firms can adopt several strategies. On the largest scale, collaborative industry initiatives, such as joint research projects, shared training facilities, and industry-wide standards for workforce development, can help firms stay ahead of the curve.
For individual firms, simulation and modeling tools can provide valuable insights into the implications of new technology before deployment, allowing firm leadership to make informed decisions. Firms would also be well-served to create and maintain a long-term technology roadmap, including a multi-year vision for upgrades and new technology adoption, risk mitigation practices, prioritized funding, and regular reviews to align with business objectives and market trends. By implementing these strategies, firms can ensure they are well-prepared to leverage the benefits of technological advancements while mitigating potential risks.
Long-term success in a rapidly evolving market
Ensuring long-term success in a rapidly evolving market requires law firms to rethink traditional business models, particularly the billable hour model, and embrace new pricing models that focus on the value of outcomes. Strategic investments in technology and knowledge management are crucial to staying competitive. The ongoing shift in talent models, with a move towards more experienced lateral hires and a reduction in junior associate hiring, is another stress factor that firms will need to factor into their strategies for 2025 and forward.
One thing is certain: GenAI tools promise to allow legal professionals to leverage their expertise in unprecedented ways over the next few years. The current size of a firm, its level of profitability, or its traditional place in the legal market may not be stable in this rapidly-changing landscape: there will be substantial winners as well as firms that do not come out as well. As always, firms that understand and prioritize their client’s true needs will be the best-positioned to take advantage of shifts in the market.
For more insights, read the full 2025 Report on the State of the US Legal Market.
