AI-powered legal practices surge: Clio's latest Legal Trends Report reveals major shift

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Oct 07, 2024, 11:46 ET

Report shows AI adoption in law firms skyrocketing from 19% to 79% in just one year, prompting firms to realign their priorities and billing strategies.

AI usage has jumped to 79% of legal professionals, up from 19% in 2023, reshaping legal work
Secret shopper study reveals over 50% of law firms ignore client inquiries—a massive opportunity for better client engagement
Law firms are charging 34% more of their cases on a flat-fee basis compared to 2016
Law firms are boosting tech spending by 20% annually, with solo practitioners leading with a 56% increase

AUSTIN, Texas, Oct. 7, 2024 /PRNewswire/ - Clio, the world's leading provider of cloud-based legal technology, has released the ninth edition of the Legal Trends Report, offering exclusive insights into the key trends shaping the legal industry. This year's report provides in-depth analyses of AI adoption in the legal industry, the growing use of flat fees, law firm spending priorities as it relates to technology and marketing efforts, and their responsiveness to prospective clients.

The ninth edition of the Legal Trends Report is now available. (CNW Group/Clio)

"AI has reached the level of adoption the cloud took a decade to obtain, with 79% of lawyers now using AI daily," said Jack Newton, CEO and Founder of Clio. "This increased efficiency is pushing firms to adopt more flexible billing options, like flat fees, that better align with the value they deliver. While the appetite for AI is promising, our report reveals that many firms still miss crucial growth opportunities by failing to respond to client inquiries promptly. A real advantage lies in improving client engagement, which will help firms stay competitive, deliver superior service, and secure long-term success in the evolving legal market."

AI adoption is transforming legal practice

The latest report reveals that AI usage in law firms has skyrocketed, with 79% of legal professionals now incorporating AI tools into their daily work—a significant jump from just 19% in 2023. Not only are law firms embracing AI, but clients are increasingly supportive, with 70% either preferring or being neutral toward firms that utilize AI. This acceptance signals a shift in client expectations as AI becomes more mainstream in legal processes.

The steep adoption of AI has the potential to disrupt how lawyers operate the business-side of their firms. Clio's analysis shows that up to 74% of hourly billable tasks—such as information gathering and data analysis—could be automated with AI. Law firms should consider moving away from hourly billing in favor of more flexible options like flat fees to preserve profitability while benefiting from the increased efficiencies AI brings to legal workflows. As AI reduces the time spent on billable work, law firms may see a decline in revenue if they continue to rely on hourly billing.

Key highlights to note:

AI could make law firms more effective in working with clients—as a result, they may need to invest more in marketing to attract an increased 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 number of legal professionals using AI has surged from 19% in 2023 to 79% this year, marking 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 automatable, compared to 57% of lawyers' tasks.

Flat fee billing is on the rise

Flat fee billing has become an increasingly popular option, with law firms charging 34% more of their cases on a flat-fee basis compared to 2016, according to the report. This model is proving to be a more sustainable option as AI adoption accelerates. As AI reduces the time required for many administrative tasks, billing by the hour becomes less practical. Flat fees, on the other hand, enable law firms to capture the value of their services without being limited by time-based billing constraints.

While hourly billing remains predominant in law firms, clients are driving the shift towards flat fees with 71% now preferring to pay a flat fee for their entire case, and 51% favoring flat fees for individual activities. In addition, 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.

By adopting flat fees, law firms not only put themselves more in line with client expectations but also improve cash flow and service delivery, positioning themselves to handle more cases efficiently without compromising on quality.

Law firms increase investment in marketing and technology

Law firms have been steadily increasing their marketing and technology investments, with software spending growing by an average of 20% annually since 2013. This increase has outpaced revenue growth, which has increased steadily at 9% each year. The growing shift in spending towards technology highlights that as the industry grows, firms increasingly see technology as integral to their future business.

The data shows that these investments could be paying 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.

Solo lawyers, while spending the least on software as a percentage of their overall expenses (0.58%), are rapidly accelerating their technology investments. In fact, solo practitioners' technology spending is growing at a remarkable 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.

These investments in technology and marketing not only enhance internal operations but also position firms to attract more clients, increase revenue, and maintain a competitive edge in a modernized legal market.

Secret shopper study reveals that client intake remains a significant challenge

Despite advancements in technology, potential clients still face major hurdles when trying to connect with law firms. A 2024 secret shopper study, building on the findings of the 2019 Legal Trends Report, highlights these persistent challenges. Of the 500 law firms emailed, only 33% responded, a drop from 40% in 2019. 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.

While firms that responded to emails did so promptly—84% within eight hours—just 18% provided clear next steps or cost information, and only 2% referenced similar legal cases as requested by shoppers. Phone interactions 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, with 73% unlikely to recommend the firms they contacted. However, personal interactions on the phone were more positively received, as 39% of shoppers said they would recommend firms they spoke with directly.

Law firm websites also offer a chance for improvement, as just 30% provide clear guidance on the hiring process, and 14% display pricing information.

Firms that focus on improving their client onboarding experience, like adding online client intake tools, are found to have 50% more incoming potential clients and earn 50% more revenue on average.

"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."

Additionally, using technology like chatbots to enhance client engagement offers promising potential. While 51% of clients find chatbots useful for exploring legal options, 67% still prefer having the ability to speak with a human when needed. This balance of technological efficiency with personal connection presents a valuable opportunity for law firms to refine their client intake processes and better meet their expectations.

About the Legal Trends Report

The Legal Trends Report is an ongoing research initiative that tracks key trends in practice management, client expectations, technology adoption, and more across the legal industry. Now in its ninth year, the research draws on data from thousands of legal professionals across North America, offering valuable insights into the emerging trends that are shaping the future of legal practice.

Each year, Clio's team of research experts expand their efforts to cover new areas of interest, reflecting the rapid shifts in legal technology, client engagement, and law firm operations. Clio's Legal Trends Report has become a trusted resource for legal professionals, law firm leaders, and industry stakeholders seeking actionable insights to stay ahead in an increasingly competitive and evolving market.

To stay informed of legal industry changes and access the latest report visit clio.com/ltr.

About Clio

Since its inception in 2008, Clio has revolutionized the landscape of legal technology, emerging as the undisputed leader of innovation and integration. By offering advanced yet intuitive legal software, Clio has redefined efficiency and client service, setting the standard for legal professionals across the globe. With an unwavering commitment to groundbreaking innovation and customer success, Clio stands as the preeminent authority in legaltech, continuously pushing the boundaries of the sector's evolution. Explore the future of legal technology with Clio at www.clio.com.

SOURCE Clio