Check the archives of any long-established legal publication, as I recently did, and you’ll likely find articles about the impending demise of the billable hour stretching back to the 1990s. And yet, decades later, hourly billing remains the financial backbone of many, if not most, law firms.
It raises the question: How much progress have law firms actually made in offering alternative billing arrangements to their clients?
An annual survey of more than 4,000 law firms conducted by Good2bSocial’s sibling company Best Law Firms provides some hard data about the frequency and types of alternative fee arrangements (AFAs) at North American firms.
Overall, the survey shows that the billable hour has been remarkably resilient—with more than a quarter of U.S. firms still using it as their sole fee arrangement for clients. Yet, adoption rates for alternative arrangements continue to rise. The number of firms with AFAs increased 10 percent year over year, according to the survey. And among midsize and larger law firms, nearly nine out of 10 now provide a mix of billing alternatives for their clients.
What Firms Are Offering
Flat fees—a predetermined amount for certain services, often routine or standardized legal matters—are, by far, the most common type of alternative arrangement at firms, the survey results show. About 70 percent of firms said clients could negotiate a flat fee for a portion of their services. Flat fees were the most common alternative arrangement in every region of the country and among firms of all sizes.
Flat fees share a trait with billable hours that may help explain their popularity: They are easy for law firms to understand and explain to clients. For corporate law departments, hourly bills may vary depending on the size or complexity of the legal work, whereas a flat fee provides budgeting certainty. On the downside, flat fees are usually a big-ticket expense that may require in-house leaders to sell the concept to their fellow executives—a prospect they may wish to avoid.
About one-third of firms also said they are using fixed fees. Although flat and fixed are sometimes used interchangeably by law firms, Best Law Firms uses fixed fees to refer to an alternative billing arrangement for a specific matter. For example, a law firm and a client may negotiate a fixed fee arrangement for an individual lawsuit. In the survey, flat fees were meant to encompass a range of work, such as a firm agreeing to flat fees to maintain a company’s IP portfolio.
Other Fee Arrangements
More than half of the firms surveyed said they use contingency fees. Unsurprisingly, contingencies were particularly prevalent among smaller firms focused on plaintiffs-side work. However, the survey also shows that use of contingency fees is growing among midsize and larger corporate defense firms, where partners are becoming more comfortable sharing risk with their clients in certain litigation matters.
Blended hourly rates—in which a firm charges a single hourly rate for all lawyers on a matter—are also being deployed by more than 50 percent of firms. More than 40 percent use retainers and discounts based on the volume of work they receive from clients, and 38 percent have capped fees—where firms agree that pricing will not exceed a maximum amount.
With hybrid fees, firms charge billable hours for a portion of their work and offer an alternative fee (capped, flat, contingency) for the rest. Those arrangements are being offered by 17 percent of firms. And 3 percent are using collared fees. In a collared arrangement, the client agrees to pay hourly rates within a range, with rates decreasing if billable hours exceed the upper end of the range.
Although small firms and boutiques were less likely to offer AFAs than their midsize or large firm counterparts, they tended to offer a wider variety of billing options when they did. Firms with fewer than 20 lawyers averaged 5.4 alternative fee options; firms with 20-50 lawyers provided 4.6; 50-150 lawyers, 4.4; and 150 lawyers or more, 4.1.
Flexibility and AI
The growth of generative AI has, of course, driven a new round of questions about the future of the billable hour. How, for instance, will firms be able to bill at hourly rates if AI is performing a task in seconds?
Some consultants, clients and law firms see flat fees as the answer, touting them as the path to a more transparent, predictable, and client-friendly pricing structure. As the survey results show, many firms are already comfortable with flat fees, and it’s safe to say they are likely to become even more popular.
That said, the stake has been hovering over the heart of billable hours for the entire quarter century I’ve been covering the business of law. I doubt they will disappear any time soon. That said, a more flexible approach and greater variety of AFA options could provide firms with a competitive advantage at a moment when in-house teams are contemplating lower-cost options and as artificial intelligence drives automation.
(Best Law Firms Legal Market Report 2025 includes additional benchmarking information about pro bono performance, competitive strategies, clients, geographic expansion, generative AI, non-lawyer staffing levels, the gender makeup of firms, and DEI programs. Click here for a full report.)
Do you have questions, feedback, or topics you would like The Edge to cover? Send a note to david@good2bsocial.com.