Law firms’ existential trilemma: Increasing client demands, AI’s big promises, and the quest for relevance

The recent Pricing, Profitability, and AI Conference, hosted by Sandpiper Partners, exposed a legal industry at an inflection point. Client expectations are evolving faster than ever, while law firms face mounting pressure to rethink their pricing models, accelerate AI (artificial intelligence) adoption, and optimize operations in an era of increasing economic uncertainty.

Drawing insights from panels featuring law firm leaders, their corporate legal clients, pricing experts, and industry innovators, these key themes emerged as defining challenges that, if addressed, could be turned into opportunities:

Client demands force a shift in value and pricing transparency

Legal pricing models are undergoing increasing levels of scrutiny as clients demand concrete value justification and cost predictability. Corporate legal departments are now pushing back against hourly rate increases, with one panelist, a large law firm client, sharing that some junior associates in elite firms are billing close to $1,000/hour. This “level of rate increases, is unsustainable,” they added. A law firm leader on the panel countered that law firms should be framing fees as investments that require returns through success-based structures, saying, “I look at my cases and I should be returning about 10x on every dollar you pay.” Communicating measurable ROI to clients is paramount to forge the trusted relationships clients seek.

This shift has accelerated the adoption of Alternative Fee Arrangements (AFAs), with corporate legal departments mandating fixed-fee options for routine matters, according to a pricing expert on the panel. Firms report innovative implementations like eight-figure annual fixed-fee patent portfolios that eliminate billing disputes while aligning incentives around efficiency. However, such models require rigorous scoping protocols and built-in “exit ramps if we need to revisit the fee and adjust terms if case complexity escalates beyond initial projections,” according to a law firm panelist.

Transparency now serves as the foundation for client trust, with forward-thinking firms providing granular cost breakdowns and flexible pricing tiers. A law firm panelist advocated for offering collaborative options like blended rates for cross-disciplinary teams or complexity-based pricing grids during negotiations. As another panelist observed, firms that frame fees as strategic partnerships rather than transactional costs are ahead of everyone else, particularly when pairing upfront cost projections with data-driven demonstrations of value delivery.

Simultaneously, the definition of “value” has expanded beyond legal expertise to include commercial awareness and operational creativity. For instance, some firms proactively identify process efficiencies, such as using AI to reduce expert witness costs. A law firm client panelist said, they increasingly reward “out-of-the-box thinking” to solve business challenges, citing examples like restructuring supply chain contracts to align with corporate sustainability goals. This evolution reflects a broader expectation for law firms to act as strategic partners driving holistic business outcomes, not just legal victories.

AI emerges as a strategic enabler, not just a cost-cutter

While AI adoption remains uneven, forward-thinking firms are leveraging tools to enhance—not replace—human expertise.

Law firms are increasingly integrating AI to enhance efficiency while maintaining client trust. A law firm panelist highlighted how AI redistributes workflows, freeing associates to focus on advising clients about regulatory risks.

While the promise of AI remains, understanding how to best adopt and manage AI tools still requires human intervention, Joel Wirchin, from our newly joined-up Williams Lea by RRD business, said, “AI becomes a whole lot smarter when humans contribute and work with it. We’ve already begun to see where that vertex optimizes revenue and revenue generation.” He noted that according to a recent Williams Lea survey, “77% of firms are now engaged in the active practice of refining and reengineering e-billing processes as a vehicle, turning what could be a compliance problem and cost center into a competitive advantage.” He continued, “Williams Lea partners with Hercules AI for an e-billing compliance solution that combines the power of AI and the knowledge of humans in the loop. This combination delivers measurable improvements in billing deductions, and reducing task redundancy and fee earner time spent on pre-bill review.”

Collaboration with clients shapes responsible AI adoption. For instance, an AmLaw 100 panelist spoke about how their firm co-developed AI contract negotiation tools with a Fortune 100 company, translating traditional playbooks into machine-readable formats while aligning success metrics across legal and corporate teams. Other firms complement such partnerships with governance structures, including AI oversight boards that evaluate tools, mitigate data risks, and preserve proprietary workflow portability.

Despite these advancements, practitioners stress that human expertise remains irreplaceable. “Clients ultimately buy trust, not just outputs,” observed a practice director on the panel.

Data understanding and agility separate thriving firms from struggling peers

Firms are now looking at profitability through granular data analysis. Top law firms utilize advanced tools to assess matter profitability across multiple dimensions, from client relationships to individual partner performance. Choosing the data that matters and understanding what it signaling is critical to ensuring firms identify the greatest opportunities for increasing profitability as well as proactively identify areas of strain.  This analytical approach extends to talent development: One law firm panelist shared that they train associates on financial metrics like realization rates, to better help them form mutually beneficial client relationships and ultimately bring CEO-level business acumen as partners in the firm.

The flight to quality continues to drive real estate investment

With commercial rents in cities like New York exceeding $170/sq. ft. and construction costs hitting $500/sq. ft. for premium offices, firms are reimagining workspace strategies while doubling down on profitability analytics.

The commercial real estate landscape is undergoing a strategic shift as firms balance hybrid work demands with financial realities. A panelist from a commercial real estate firm noted that companies are reducing office footprints, while others expand in competitive markets like Austin and Miami to attract talent. An AmLaw 50 firm exemplifies this trend, redesigning their New York offices with modular collaboration hubs that adapt to fluctuating team sizes.

The path forward

The legal industry’s future belongs to firms that treat client relationships as partnerships, wield AI as a value multiplier, and leverage data to drive operational flexibility. The leaders will be firms that invest in client-centric pricing, tech-enabled talent, and spaces that inspire both focus and connection. With economic headwinds persisting, the time for half-measures has passed. Survival demands transformation.

Download The compliance conundrum: Partner-workforce gaps, client risks, and tech underutilization in e-billing to learn more about the hidden risks eroding law firm profitability.