As we step into 2025, the legal operations landscape continues a transformation anchored by a simple question: What does value truly mean in a legal department?
As we’ve seen through our work at UpLevel Ops and Value Strategies, the answer often transcends traditional cost-control measures. Instead, it lies in fostering a change management culture that prioritizes efficiency, transparency, and alignment between legal departments and their partners.
The Rise (and Necessity) of Value-Based Pricing
Many legal departments are abandoning the billable hour in favor of Value-Based Pricing (VBP) fee arrangements, a model designed to align fees with actual deliverables and results instead of hours spent. Why? Everyone agrees that the billable hour incentivizes inefficiency and misalignment. VBP flips this dynamic, creating partnerships by aligning incentives between the client and the firm.
VBP is not considered an alternative fee arrangement; instead, it is an entirely different methodology for pricing legal matters. Legal departments that have converted to VBP report significant reduction in outside counsel spend (20% – 50%), improved budget predictability, and reduced administrative costs.
The significant reductions in outside counsel spend come from a process that requires the firm to be more efficient in delivering legal services, and the client benefits from that efficiency gain. Administrative savings come from the elimination of invoice reviews and accruals processes. In addition, VBP enhances collaboration and communication between in-house teams and outside counsel.
Change Management: The True Catalyst for Success
Internal change management is key to rolling out a VBP program. As with most program implementations in a legal ops environment, getting the internal team to do something different can sometimes be a big lift. Having buy-in from the executive team can be very helpful in motivating the team to move forward.
Another useful method is piloting a smaller practice area, especially with a practice area manager open to new ideas and trying new processes. After a successful pilot, that manager could evangelize the benefits of VBP to the rest of the department.
Another way to incentivize internal team members to implement VBP is to explain how the program will benefit them personally. These benefits include the elimination of invoice reviews and the accruals process.
How Do You Determine the Value-Based Fee?
Actual pricing under the VBP model is derived from five components: matter type, matter value, jurisdiction, type of firm, and risk-sharing.
- Firm and Matter Type – A definition of matter type and firm type begins with understanding Value Price Points (VPP). This can be thought of on a relative scale as there are types of matters and certain types of tasks that have a lower VPP than others. These VPP (or market) differentials can be due to many factors, including the complexity of the work, commonality of the work, the number of skilled practitioners available, and the “perceived” value of the work. Understanding VPPs for different matter types and tasks is helpful in setting pricing and assigning the proper resources to do the work (partner, associate, paralegal, etc.).
This concept of VPP also applies to firm types. Different firms have different VPPs based on size, brand, reputation, matter breadth, client list, geography, overhead structure, etc. It is important to match the VPP of the matter with the VPP of the firm that will do the work.
- Matter Value – One of the key components to creating a value-based price is to perform a Matter Value Estimation (MVE). There are three types of value: economic, perceived, and strategic. An MVE begins with an economic value estimation. This is typically the actual economic value of the matter. Perceived value is the economic value of the matter adjusted to the perceived value of the client. Typically, in litigation, it is significantly less than the economic value. For a transaction, it may or may not be the same as the economic value.
The final step in an MVE is the determination of the strategic value. In litigation, this is the financial impact on the corporation of losing the case and the economic impact of potential future litigation or brand impact. For a transaction, this includes the financial impact on the corporation if the deal does not go through.
- Jurisdiction – This factor considers the court and the geography in which the matter is adjudicated.
- Risk-Sharing – Pricing structures can incentivize risk-sharing by law firms and drive toward the client’s goal of paying more for results and less for effort. This alignment of incentives between the client and firm provides better value for the client and allows a law firm to earn a premium for outstanding results.
What Types of Fee Structures and Price Metrics Are Used in VBP?
In the application of value-based fee arrangements, there are numerous structures and metrics are used to create the actual fees. Below are a few basic structures. More complex arrangements are hybrids of multiple structures.
- Task-based ─ This structure is usually a fixed fee for a specific task and is often seen in patent prosecution or immigration law. An example is a fixed fee for completing and filing a utility patent or H1B visa.
- Tier or category-based ─ Some legal work can be divided into value tiers, and often a fixed fee is assigned to each tier or category.
- Scope-based – For legal work that is project-based with specific deliverables or has a defined scope of work delivered consistently over a period of time, a fixed fee would be defined.
- Unit-price metrics – Different price metrics should be considered in each engagement. Under the traditional hourly rate model, the unit price metric is dollars per hour. Since hours worked is not synonymous with value delivered, consider other value-centric metrics such as dollars per document, dollars per deposition, or dollars per motion. There are an unlimited number of ways to modify the metric based on different types of matters, goals, and outcomes.
Summary – Benefits of Value-Based pricing
Many corporate legal departments are beginning to realize that the current hourly billing model is unsustainable. With billing rates for some firms topping $2500 per hour, the question becomes, “Where does this end?” In-house attorneys want to move off of the billable hour model but don’t know how to accomplish it or how to evaluate if an alternative fee is right for them. VBP is fast becoming the new standard for clients to focus on the value received in legal services, not the effort expended.
With AI dramatically reducing the time required for legal tasks, law firms will need to shift their revenue model from hours burned to actual value delivered. Over the next few years, this transformation will accelerate, making value-based pricing not just an option—but a necessity.
Fortunately, this methodology applies across all legal matters and practice areas. It gives legal departments the budget predictability they need while significantly reducing total legal spend and increasing in-house productivity. It can also be used to build new partnerships between firms and clients that are based on value delivered and client success.
Like the other top-tier professional services industries that converted to this methodology over 20 years ago, VBP is the future of legal services. The change will most likely not come from the law firms but from clients beginning to demand results-based compensation models.
Stephanie Corey is a co-founder and CEO of UpLevel Ops. Stephanie also co-founded LINK (Legal Innovators Network), a legal operations organization exclusively for experienced, in-house professionals. She previously founded the legal operations trade organization CLOC (Corporate Legal Operations Consortium) and is a former executive member. Please feel free to contact and connect with her on LinkedIn.
Ken Callander specializes in helping corporate legal departments optimize their outside counsel relationships, ensuring greater value, efficiency, and budget predictability. As part of the Advisory Team at UpLevel Ops, he partners with legal teams to implement strategic outside counsel management programs, including transitioning from hourly billing to value- based fee arrangements. His clients span industries such as technology, healthcare, construction, the sharing economy, private equity, and multinational conglomerates. Please feel free to contact or connect with him on LinkedIn.
