Usage of artificial intelligence by legal professionals has skyrocketed from 19% in 2023 to 79% this year, according to the ninth edition of the Legal Trends Report, released today by Clio during its Clio Cloud Conference in Austin.
The report further finds that up to 74% of hourly billable tasks – such as information gathering and data analysis – could be automated with AI, potentially disrupting the business side of law firms.
For this reason, the report says, law firms should consider moving away from hourly billing in favor of more flexible billing options such as flat fees. As AI reduces the time spent on various tasks, law firms that adhere to the billable hour may see a decline in revenue, the report says.
Clients are increasingly supportive of lawyers’ use of AI, the report says, with 70% of clients either preferring or neutral toward firms that use AI. Asked their preference when hiring a law firm, 42% said they would prefer a firm that is using or exploring AI, 28% said they had no preference, and 31% preferred a firm not using AI.
“The modern law firm is ripe for automation — nearly three-quarters of a law firm’s hourly billable tasks are potentially exposed to automation by AI,” the report says. “To that end, automation can offer firms the space to focus on the tasks that require a human touch — like high-level legal work, advocacy, and fostering client relationships — while maintaining a high level of service.”
Universal Adoption Still Low
While the report finds that 79% of firms have adopted AI, the number that have adopted it universally is just 8%, while another 17% say they have adopted it widely. Thirty-four percent say they have adopted it only minimally and 21% say they have adopted it partially.
Of those who are holding back on adopting AI, the most common reason, cited by 59%, is that they are unsure it will help them with their work. Other reasons given were:
- Don’t trust it, 44%.
- Think it’s unreliable, 34%.
- Think it’s not advanced enough, 30%.
Of those firms that are adopting AI, the products they are using most commonly are:
- Generic non-legal AI tools such as ChatGPT).
- AI-powered legal research platforms.
- Document drafting tools.
Other Findings
- AI could make law firms more efficient in working with clients, which means they may need to invest more in marketing to increase their client pipeline. The ability to handle more clients will require a stronger emphasis on marketing strategies to sustain the workload and grow the business.
- The surge in the number of legal professionals using AI marks a significant shift in how law firms are integrating AI into their daily operations.
- Nearly three-quarters of a law firm’s hourly billable tasks are exposed to AI automation, with 81% of legal secretaries’ and administrative assistants’ tasks being capable of automation, compared to 57% of lawyers’ tasks.
How Much of Law Can Be Automated?
A 2023 Goldman Sachs study concluded that 44% of work tasks performed in the legal industry could be automated by AI and that AI could potentially replace 40% of legal industry employees.
This year’s Legal Trends Report dives into that question, undertaking what it called a more-refined analysis that started from the same data Goldman Sachs analyzed but then compared it to aggregated and anonymized billing data from tens of thousands of legal professionals.
It found that nearly three-quarters of a law firm’s hourly billable tasks arepotentially exposed to automation by AI. The tasks with the highest potential for automation included:
- Documenting and recording information.
- Getting information.
- Analyzing data or information.
Those also happen to be the tasks that account for 66% of the hourly billable work done by the average law firm, the report says.
Meanwhile, the tasks least likely to be automated include providing consultation and advice and developing objectives and strategies.
“If firms implement more AI technologies to automate the more menial, information-heavy work related to document drafting and review, they may have more opportunity to take on more higher-value, strategic work with clients,” the report says.
A Rise in Flat Fee Billing
This year’s report finds that flat fee billing is increasingly popular, with law firms using it for 34% more of their cases than in 2016. As AI reduces the time required for many law office tasks, flat fees enable law firms to capture the value of their services without the constraints of time-based billing.
Even so, hourly billing remains predominant in law firms, even though the report finds that 71% of clients prefer to pay a flat fee for an entire case and 51% favor flat fees for individual activities.
Further, the report says, law firms using flat fees benefit from quicker billing cycles and faster payment collection, as they are five times more likely to send bills, and nearly twice as likely to receive payments, as soon as they complete their work for clients.
Increasing Investment in Marketing and Tech
Law firms are steadily increasing their investments in marketing and technology, the report finds.
For software, spending has grown by an average of 20% annually since 2013. This increase has outpaced revenue growth, which has increased steadily at 9% each year.
The disproportionate growth in technology spending shows that firms increasingly see technology as integral to their future business, the report says.
Further, investment in technology appears to pay off. Firms with above-average productivity — those billing more than the industry average of 33% of their workday, or roughly three hours of billable time per day — are making even larger investments in technology and marketing.
These firms spend 12% more on software and 41% more on marketing, leading to a 21% increase in profitability.
The data demonstrates a clear link between tech adoption, higher marketing efforts, and overall financial success, the report finds.
Solo lawyers spend the least on software as a percentage of their overall expenses (0.58%), but the report finds that they are rapidly accelerating their technology investments. Solo practitioners’ technology spending is growing at a rate of 56% annually, more than twice the industry average.
By comparison, small firms with 2 to 4 lawyers spend 1.77% of their expenses on software, while firms with 5 to 19 employees spend 1.37%, and firms with 20 or more employees spend 1.6%.
This rapid adoption by solo practitioners reflects their recognition of technology’s critical role in remaining competitive in an increasingly digital legal landscape, the report concludes.
‘Secret Shopper’ Study Shows Intake Issues
This year’s report includes the results of a “secret shopper” study in which emails purporting to seek legal help were sent to 500 law firms.
If the firms contacted, only 33% responded, a drop from 40% in 2019, when Clio conducted a similar study.
Phone inquiries also showed a decline, with only 40% of firms answering calls, compared to 56% in 2019. In total, 48% of law firms were essentially unreachable by phone.
Of the firms that responded to the emails, most did so promptly, with 84% responding within eight hours. However, just 18% provided clear next steps or cost information, and only 2% referenced similar legal cases as requested by shoppers.
Those who reached firms by phone fared no better, as only 41% of firms offered rate information, 12% provided cost estimates, and 36% explained the legal process or outlined next steps.
These gaps in communication left secret shoppers frustrated, the report said, with 73% unlikely to recommend the firms they contacted. The shoppers who reached firms by phone were more positive, with 39% willing to recommend firms they spoke with directly.
The report found that law firm websites also offer a chance for improvement, as just 30% provide clear guidance on the hiring process, and just 14% display pricing information.
By improving their client onboarding experience, such as by adding online client intake tools, firms have 50% more incoming potential clients and earn 50% more revenue on average, the report says.
“Clients today expect timely responses and clear communication from their law firms, and those firms that prioritize this are seeing outsized gains in both new clients and revenue,” said Joshua Lenon, lawyer-in-residence at Clio.
“By incorporating an online intake process and using technology thoughtfully, law firms can address these challenges head on, creating a more seamless experience from the very first client interaction.”