AI Tokens and the Billable Hour

When the unstoppable force of AI meets the immovable object of the billable hour...

The OpenAIs and Anthropics of this world are moving away from all you can eat subscription pricing to subscription + token usage, or just straight up token pricing - and this emerging pricing model is now far more compatible with traditional hourly rate billing

Yes - fixed fees and value based pricing better etc etc. My observation here is a practical, rather than ideological, one

But the path of least resistance is starting to look like a composite bill showing hours worked, plus tokens charged as disbursements - it's a relatively straightforward step from where many firms are now and provides some transparency to clients as to the extent AI is being used on matters

If history is any guide, it's also consistent with approaches to passing on e-discovery costs and printing costs for bundles etc

Litigation and procurement led corporate legal work are, I think, most likely to lean towards this approach, although there are still opportunities to shift towards fixed fees and value based pricing outside those areas

Assuming this is the path forward, I would suggest that firms revise their hourly rates - potentially sharply upwards for more experienced fee earners

If you think of an hourly rate being an average of low-value work (e.g. photocopying) and high-value work (e.g. case strategy), and we assume that AI is taking the low value work away (albeit not photocopying!) then the average value delivered in an hour increases

This would sensibly and justifiably be reflected in higher hourly rates, which is not say clients won't also see benefits from AI here in the form of lower overall prices (hours + tokens)

There is also some work to be done to efficiently allocate tokens to specific matters, and potentially a point of differentiation here for legal-specific tech vendors to enable that within their products

Interesting times to be working in pricing!

The billable hour is dead, long live the billable hour