The latest 2025 Report on the State of the US Legal Market from Thomson Reuters offers a candid snapshot of a legal industry in flux. Pricing, profitability, and the ongoing battle between hourly billing and alternative fee arrangements (AFAs) are at the heart of this evolution. Here are the standout insights—and why they matter for the future of legal pricing:
📊 1. The Hourly Billing Model Faces Increasing Pressure
“Discussions around alternative pricing models that focus on the value of the outcome, rather than the amount of time spent, reflect a broader shift towards client-centric practices”. This aligns with the growing reality that generative AI is slashing the time required to complete routine legal work. As the report notes, 44% of legal professionals predict GenAI will cause a decline in hourly billing models over the next five years.
✨ How Virtual Pricing Director is Leading the Change:
VPD empowers firms to craft transparent, client-focused pricing models—fixed fees, value-based pricing, and success-based fees—while maintaining profitability. Our software helps firms transition from billing by the hour to pricing by value, offering real-time monitoring to ensure proposals align with budgets and profit targets.
💰 2. Profits Are Up—But Change is Driving Them
Despite concerns over costs, law firms achieved 11.6% year-over-year growth in profits per equity partner (PPEP). The key? Strategic shifts in compensation, greater leverage from non-equity partners, and tighter expense controls—particularly in technology and knowledge management.
🚀 Where VPD Adds Value:
By helping partners model different pricing methodologies and their impact on profitability, VPD transforms pricing from guesswork to science. Firms can test pricing scenarios, monitor profitability in real time, and educate lawyers on the commercial impact of their pricing choices.
💡 3. Technology Spend is Soaring—But So Is Tech Debt
Law firm technology spending hit record highs in 2024, yet many firms face ‘technological debt’ from patchwork systems. As generative AI becomes integral to legal services, firms that fail to modernize their pricing capabilities risk falling behind.
💎 VPD as a Catalyst for Innovation:
VPD integrates seamlessly with firm data ecosystems, providing real-time, AI-powered pricing insights. By replacing manual spreadsheets and guesswork with intelligent automation, firms can modernize their pricing processes without adding to their tech debt.
📈 4. The Billable Hour vs. Value-Based Pricing: The Debate Intensifies
As the American Bar Association’s Formal Opinion 512 underscores, efficiency from AI will force firms to rethink the billable hour model. “It may be unreasonable under Rule 1.5 for a lawyer to charge the same flat fee when using GenAI tools as when not”. The billable hour, long entrenched in law firm economics, may no longer reflect the true value delivered to clients.
🛠️ VPD: A New Approach to Value-Based Pricing:
VPD allows law firms to experiment with alternative fee arrangements and understand their impact on margin and profitability. By leveraging data and AI, firms can price matters based on outcomes and value delivered, not just time spent.
The Bottom Line:
The legal industry is at a crossroads. As the 2025 Report on the State of the US Legal Market makes clear, pricing models are shifting from inputs to outcomes. At Virtual Pricing Director, we see this as an opportunity for law firms to redefine value, drive profitability, and lead with innovation.
Is your firm ready to make the shift? Let’s talk. 💬👇
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