The 8 Hours Saved
Samuel Junghenn, the CEO of AI Legal Assistant, recently presented an interesting pricing option framework in an online demonstration of his AI application.
He showed that law firms could offer their clients two alternatives to get their work done: one ‘human-only’ option with standard rates, and one ‘AI-assisted’ option with higher rates. Junghenn claimed that both options would produce outcomes of comparable quality, and the firm’s professional liability insurance would cover both.
He argued that by using their AI system, the firm could create a ‘win-win’ scenario in which clients could save on the total fee they paid. The firm could make $1,200 additional profit due to a higher hourly rate and save 8 hours of fee-earner time (ignoring the cost of licensing the technology, training and support).
Is this too good to be true?
Well, it works if the firm has a backlog of client demand (or can easily generate this demand) that the freed-up capacity of 8 hours can then be billed at higher rates. If there is no backlog or additional demand, and the firm maintains the same level of resourcing, then the net impact is a loss of $2,000.
If the practice is currently operating at 120% and people are burning out, then offering this option could make workloads more sustainable. The net loss still doesn’t go away, but hurts less.
One could allocate the saved 8 hours to activities that would hopefully benefit the practice over the longer term. This could include things like brand building, business development, quality control, process improvement or culture-enhancing activities. While there’s likely to be a net gain, there’s going to be a point when the return on these additional investments would taper off.
There are also potential benefits of being an early adopter. Assuming the ‘market price’ in the example above is around $8,000, the firm offering a quality-comparable (and quicker) $6,000 option would be winning share off competitors just offering the 20-hour human-only version. In the short term, the saved 8 hours might quite easily be billable for the first movers.
The higher AI-assisted rate (relative to human-only) signals that the lawyers are doing more valuable work that integrates specialised AI tools together with human insight and oversight. A higher rate also communicates to clients that there is a higher cost of delivery by acquiring, tailoring and using legal AI.
If, over time, all firms acquire the same AI technology, then the worked example shows that the market price will likely fall to somewhere around $6,000. Assuming no changes in demand, the only way firms will be able to retain their margins is to reduce capacity and have fewer people doing the work. Will that be junior, mid-level or senior people? No one quite knows at this point.
The Junghenn case study points to the importance of experimenting with new pricing and value capture options using AI. There are no easy win-win solutions, but just sitting on your hands waiting for the AI hype bubble to burst is not what we would recommend.