We launched Spellbook, the first AI drafting & review tool powered by generative AI
The venerated billable hour is logical. It has been with us, probably, since the days of Socrates.
Lawyers get paid for the amount of time we put into a matter. Totally logical. Except there is a very stark difference between traditional hourly rate work, like physical labour, and doing knowledge work. The problem with the billable hour is that it rewards time over knowledge. You don’t get paid more for being a better lawyer or more efficient lawyer – you get paid for the amount of time you show up.
The contingency fee is a little more palatable. If the lawyer does a good job, she gets paid more because the client receives more. Better lawyers negotiate better settlements based on the strength of the cases that they build, or they win at trial and take home real money. The problem is contingency fees aren’t allowed ethically in many contexts (such as divorce) and don’t work in others: I don’t know any corporate or business lawyers who would offer to do work for free and only get paid if a company does really well.
There is definitely room in our industry for other billing arrangements. Personally, I often use flat fees when I take on cases. It rewards me for working more efficiently. Clients love that they don’t have any ambiguity in the bill. True, occasionally, the model backfires when a case goes haywire and drags on for two years. When that happens, I adjust my policies for future cases, which happens less and less over time.
Another newer billing model that is getting more and more press – yet is only being leveraged by a minority of practitioners – is the subscription model. In a legal subscription model, your subscribers pay a monthly fee and get access to your firm without having to worry about billable hours or per project fees. Yes, you become the Netflix of law.
Before you immediately run from the room screaming, most of these subscription arrangements are limited to routine or trivial matters, quick phone calls, and predictable microtasks like that. Think of it as a 21st-century retainer agreement — they are paying you for your monthly availability and, in most cases, a bank of resources, not for guaranteed legal output.
After writing about it extensively, one of the most common questions I hear about this model is about the economics - it seems that a lawyer could make a very good living charging only $100 to $200 per month to a client. (Note: some subscription firms charge vastly higher sums than that.)
It’s a great question and an even longer answer, so let’s go through the numbers:
Before you can understand the economics, you need to understand the product: a legal subscription by definition should address a recurring need, not a one-time transactional matter.
The prototypical use case is for business law — lots of Small and Medium-Sized Businesses cannot and will not pay a lawyer for trivial routine purchase orders, contract review, etc. They get by with model forms, going with their gut, and hoping that crap does not hit the fan. For a business lawyer, a subscription model would mean catering to all of these small businesses and offering them, as an example, an hour on the phone per month plus up to three contract reviews or unlimited automated purchase orders using the firm’s document system.
The thing to hone in on here is this: for your target market, what are those recurring sticky legal needs that they need met every month? What part of their business would be improved with a lawyer's touch? And what potential landmines could be avoided if they were subscribers to this legal service?
That alone is a huge selling point to the consumer: instead of getting surprised by a bad contract three years down the line, when you are already deep into litigation and you have thousands of dollars of damages hanging over your head, you can proactively have a lawyer look at these documents as they come in and hopefully avoid the catastrophe altogether.
For me, as a unique take on the model, I initially could not fathom how a QDRO attorney could sell a subscription. (QDROs are retirement division court orders, typically after a divorce.) Individual humans typically only get divorced once or twice. Even Liz Taylor only got divorced seven times. No ordinary consumer will need a QDRO subscription — they are not going to be dividing their own retirement accounts every month after divorce.
However, after much brainstorming (and probably a few Guinness Irish stouts), I realized that a lot of my business comes from referrals from other family law attorneys who try to draft a QDRO and get stuck— these family law attorneys would love to have someone they could consult with.
As a result, I devised the idea for the QDRO Consigliere: a counsel on-call for family law attorneys who can answer their questions about these orders. It will be supported by a backend of document generation that allows them to generate orders for their clients and store them in their own portal for safekeeping.
The average lawyer in solo practice makes anywhere between $60k and $200k, depending on which survey you peek at. Let’s aim for $200k. Divide that by $100. You need 2,000 payments over the course of a year. That’s not individual subscribers – that is payments.
If all of your users stick it out all year, you only need 167 subscribers. Obviously, there will be “churn” (subscribers dropping, adding, etc.) but it doesn’t sound so hard now, does it?
Consider also that most firms won’t go full subscription: many will save their billable hours for complex cases and sign up subscribers for routine matters, template paperwork, and drop-in phone calls. Do this and you’ve now diversified revenue streams and are more protected from seasonality dips. A subscription–billable hybrid model is the perfect arrangement, in a way. It saves most of your time for complex, knowledge-based work and leaves the rote and simple to self-service.
Is 167 subscribers manageable? If you work 40-hour weeks and each client uses one hour per month, you’d have to put in overtime. But consider the data from subscription law proponent One400, which showed a utilization rate of less than 30% – most subscribers don’t even use your service. They just feel warmer knowing it is there. How does 52 hours of work per month for $200,000 sound?
Everybody’s economics are different. You may need to make your subscription rate more expensive than that to cover your overhead, especially if you hire software developers to build out document automation or webinar resources.
We’ve actually devised a special calculator where you can slide your monthly rate, the number of subscribers, and your revenue goals and it will adjust the other two pieces of the puzzle to give you the numbers you need to continue your planning of a subscription model.
An important key to the economic feasibility of this model, and the real-world feasibility, is to automate as much as possible. If you launch a subscription, but you are manually drafting every document request that comes in, you will quickly run out of bandwidth after only a couple dozen customers, at most. Add in phone calls and other document review tasks, and you will be working more for less.
On the other hand, what if your subscribers could click into an online portal and generate documents at will? Do they need a purchase order? How about one with all of the boilerplate provided by their attorney, customized to the particulars of their deal? With your own document automation platform, you can make this a reality for them (we did an extensive comparison guide on the different legaltech tools for document automation). Or, at the very least, provide a place they can request these documents, to which you can easily draft them using automation.
Plus, because they are relying on your model forms, they are going to rely on you for everything — especially the bigger legal issues you can bill by the hour. You'll also be saving them from a ton of headaches that may have happened from using templates they pulled off of the Internet, customized by some layperson in sales or marketing. If that sounds like a hell of a software development project, it is not. Rally provides this functionality out of the box.
Consider also a self-scheduling solution for any one-to-one time that you include in the subscription. If clients are expecting to be able to reach you for phone calls, use something like Calendly to allow them to schedule their calls in advance. These scheduling automation tools, if you are not familiar with them, allow the user to pick a time that is already cleared with your calendar. Once they pick a time, both of you are sent an invite and you talk to them over video chat or the phone at that time without any intervention by your support staff.
Another key concept to keep in mind when planning the economics and business of this model is the utilization rate. This is both the utilization rate in terms of consumers using your service, and your own utilization rate — your bandwidth.
Data cited by One400’s Allen Rodriguez shows utilization rates of between 25 and 30%. It may sound silly, but it seems like a lot of legal subscription users treat their lawyer like Netflix — they forget to watch something for months at a time. If you’re careful about the way you design your subscription, there will be no binge lawyering — monthly usage limits of, say, an hour on the phone or three document reviews, will save you from a small business showing up for an all-you-can-eat buffet of litigation.
A corollary to that same utilization rate is the utilization of your own hours as the lawyer. Once you’ve automated a lot of the self-service documents, and created a bank of resources that users can turn to — some lawyers create how-to videos, as an example – you will greatly reduce the number of hours you actually spend catering to these subscribers.
Will there be panicked calls on a Friday from someone who could not find availability in your calendar but has an urgent issue that they need to talk to you about? Sure. You already get those. They’re called clients. There will be occasional surges in demand – you may have to work extra hours, just like we already do. But there will also be, according to the data, about 70% of time where your subscribers are paying you just for the fact that you may be handy at some point.
One last very important idea that you need to keep in mind when designing your plan (which we didn’t include in the calculator) is the ability to upsell these clients. It is costly to get new clients through online marketing. You can spend up to $300 per click in some practice areas, if not more. That’s a click on an ad — not a consult, not a lead, not a client.
For all of these monthly subscribers who are using your document resources and how-to videos and calling you once a month to ask about a trivial legal issue, these people will have larger legal matters at some point. When they do, the first attorney they will call is you, allowing you to take on their larger legal matters (if they fit your practice area), or you can refer them out to other attorneys – giving you an even greater network and referral source from people reciprocating the favour.
Before you launch a subscription, you have to plan. Which is why we (literally) wrote the book on legal subscription services, inside we explain everything from how to structure the offering in your practice, navigating ethics, scaling the model, and client acquisition.
Stay on the leading edge of legal innovation and legal client experience.
The complete legal solution.
