According to Benjamin Franklin, only two things are certain: Death and taxes. According to the legal industry, one thing is certain, too: Law firms operate upon the structure of billable hours, or so the legal industry once assumed. Going back to the 1960’s, attorneys have historically charged clients an agreed upon rate based on the cumulative hours spent on a project. Initially, billable hours were born out of attorneys writing down the number of hours spent on a project, which was recorded on every client’s file. Law firms calculated those hours and charged their clients for them, coining the term known as “billable hours.” This billing system took off- Firms realized how lucrative the billable hours model is, and it became ubiquitous across law firms in the United States. While not a flawless system by any means, law firms have lived and breathed by the billable hours model for the last sixty years, and for most seasoned attorneys, doing away with it once seemed unimaginable. In his book, The Firm, John Grisham comments on the sacred nature of billable hours, stating, “Billing was the lifeblood of the firm. Everything revolved around it. Promotions, raises, bonuses, survival, success…” If billable hours are “the lifeblood of the firm” as Grisham writes, then why are they at risk of becoming obsolete, and what alternative payment structure will replace them?

The driving force behind the shift from billable hours to AFA’s (Alternative Fee Arrangements) is AI. Machine learning tools have proven to make the day-to-day practice of the law far more efficient than it once was. AI can streamline workflows and reduce hours spent on tedious, time-consuming tasks such as drafting, research, and review. This saves attorneys hours a day that would otherwise be spent on monotonous activities, but on the flipside, it reduces the hours attorneys can bill clients. Naturally, attorneys and firms haven’t always been keen to do away with such a profitable model. Doing away with traditional billing structures is a complex issue for most law firms, and it goes beyond the loss of revenue- It is also rooted in firm culture. Associate assessments, incentives, bonuses, and overall firm culture are all tethered to the age-old metric of billable hours. A “good” attorney is a productive one, and a productive attorney is one that charges a lot of hours, thus completing many client projects. This bolsters their image within the firm, produces revenue for the firm itself, and is directly tied to a law firm’s public image.

On the contrary, however, some argue that billable hours are not an ideal metric for productivity, even suggesting that billable hours reward unproductive behavior. In 2024, one Nordic general counsel told Law.com International, that, “Some (lawyers) even seem to take pride in not knowing what the price is going to be, a terrible way of doing business… A handful of the largest U.K.-led firms are “the worst” in this regard, he added, with historically American firms “much better”. The notion that the billable hours structure encourages unproductive behavior is debatable as well. Obviously, many attorneys bill hours in good faith, and do not purposely take advantage of the model’s lucrative nature. Nonetheless, the argument that AI would promote productivity and improve billing practices is a compelling one, and it is an argument supported by in-house legal departments, Fortune 500’s, and other corporations.

Clearly, AI’s ability to slash hours and streamline workflows provides notable benefits to firms, clients, and attorneys alike. Boosting efficiency lowers costs, and in a competitive market, high costs don’t do law firms any favors. As it stands, corporations that rely on outside counsel are struggling- They struggle to accommodate the increasing fee demands from the law firms they employ. In-house counsel departments also must control costs while facing the same rising fee demands as corporations. They can do so by moving as much legal work in house as they can while also hiring more cost-effective firms. Attorneys are also negatively impacted by billable hours- One third of U.S. attorneys leave the legal profession, with many citing burnout, long hours, and poor mental health as their primary reasons. The constant pressure to bill hours and the make-or-break impact it can have on legal careers is no doubt a large role in attorney well-being and retention. Law firms that do not adapt to new technology are not only inefficient- but those that continue to rely exclusively on traditional billing structures are at risk of losing attorneys, losing clients, and falling behind in a volatile, competitive market.

Alongside its many upsides, AI’s ability to cut costs and boost productivity continues to drive the use of AFA’s. s. Although the law is a conservative field rooted in its traditions, client demands for flexibility and efficiency have forced lawyers and firms to respond with innovative billing alternatives. As of 2019, statistics suggested that only 19% of all fees paid to U.S. attorneys. were paid to them through an alternative fee model. Further surveys also suggested that only 28% of attorneys offered clients AFA’s that year. Despite their interesting findings, these statistics may not be as indicative of legal industry trends as they once were. Where do AFA’s stand seven years later? How likely is it that they will overtake the billable hour in the coming decade?

Overall, statistics suggest that billable hours are falling out of favor. Clients are demanding flexible and cost-effective solutions to their legal dilemmas, and law firms must pivot accordingly. As of 2025, AFA use is expected to rise to 72%. This increase is largely driven by small firms. Larger, more traditional firms are not as quick to adopt new technology and new fee arrangements, while small firms are more flexible and less tied to traditional billing structures. In fact, more recent statistics suggest that only 8% of small firms exclusively bill by the hour, pointing to a marked shift toward AFA’s. Industry professionals are aware of changing billing trends, with over half reporting that they expect these innovative fee arrangements to overtake the billable hour. Hybrid models can be used as well, in which firms employ a combination of the billable hours model and AFA’s. Much like industry professionals, clients are aware of these trends and expect law firms to integrate technology into their practices alongside these new billing systems. AI and AFA’s are becoming the new industry standard, and firms that can effectively utilize AI to meet client expectations as well as adopt less traditional billing structures are more likely to be successful. The legal market remains unpredictable and competitive in 2025, and firms that can differentiate themselves by utilizing AI and AFA’s will be on the cutting edge of the industry.

Essential questions remain: What exactly are AFA’s? On a practical level, what options exist outside the billable hour? AFA’s are a broad term that encompass multiple alternative fee models. Unlike the billable hours model, there is no clear, singular structure that defines AFA’s. Some common AFA options include payment plans, contingency billing, flat-fee billing/fixed billing, capped fees, and blended fees. Payment plans allow clients to pay their attorney in installments rather than pay for legal services in a lump sum upfront. The upside to a payment plan is that law firms are accessible to their clients. Many people do not seek out legal services due to the potentially prohibitive cost that comes with paying an attorney upfront. Payment plans negate this issue. On the downside, a firm or attorney might be waiting weeks, months, or years to be paid in full. Despite this, payment plans are a viable option that bolster a client centric approach and can also work in a firm’s favor by encouraging referrals by producing value driven results. In some cases, clients can also pay firms a contingency fee if clients can’t afford the retainer needed to hire an attorney. (This, however, usually applies to complex personal injury cases.) Some law firms may employ flat fee billing in which they charge certain rates for specific tasks. Many will also employ hybrid models. The bottom line remains- In today’s legal market, clients prioritize efficient, cost-effective solutions, and firms must deliver.

Ultimately, turning away from the billable hour and toward alternative fee arrangements reflects a client-centric approach and a keen awareness of shifting industry trends. As AI and AFAs become mainstream, law firms that embrace these changes will position themselves for long-term success. The legal industry, long known for its conservatism, must adapt to this evolving landscape—whether it’s ready or not. The times have changed, and with that, so too must the legal profession.