Apr 2, 2025

Mid-sized law firms are implementing AI at a record rate, but there is a vital tech gap, a new report claims. It reveals the gap between AI investment and practice management software adoption, impacting efficiency and profitability. A  new report from Clio  discovers a seismic shift in the way firms operate. AI uptake has leapt from 19% to 93% in a year, transforming the work of lawyers. Mid-size firms, however, are adopting more billing structures, rate hikes, and accepting fixed fees to meet client demand for price certainty. But as firms rush to adopt AI, many are overlooking enabling technology. With businesses experiencing economic downturn and heightened client expectations, this report puts forth a sobering analysis of the future of legal practice. AI adoption soars The rapid adoption of AI stands out as one of the most striking trends in this year’s report, with 93% of mid-sized and sole practitioners now incorporating AI into their operations – over half of them adopting it widely or universally. Not only are mid-sized firms significantly more likely to have embraced AI than smaller firms, but their adoption is also more comprehensive. While 72% of smaller firms are using AI in some capacity, only 10% have adopted it extensively, highlighting a significant gap in technology utilisation. The push for AI adoption is driven by the need to save time, increase efficiency, and improve the quality of work. Legal professionals at mid-sized firms identify the top benefits of AI as enhancing efficiency (43%), improving work quality (38%), and managing caseloads more effectively (37%). Popular AI tools include AI-powered legal research (66%), generic non-legal AI tools (65%), and document automation (60%), which are proving instrumental in enhancing productivity and client engagement. Looking ahead, more than 80% of legal professionals anticipate AI usage will continue to grow over the next 12 months. The report breaks down hourly rates by firm size – uncovering striking differences in how mid-sized and smaller firms price their services. 99% of mid-sized firms use multiple billing rates for their lawyers, compared to just 85% of smaller firms. On average, mid-sized firms apply eight different hourly rates for lawyers and nine for other legal professionals, while smaller firms rely on just three. This pricing flexibility gives mid-sized firms a competitive edge, allowing them to tailor services to client needs and maximise revenue. Mid-sized firms are also charging higher rates with greater variability, with a $400 gap between their highest and lowest hourly rates – far exceeding the $250 gap seen in smaller firms. This signals a more sophisticated, revenue-driven approach to billing that could reshape industry pricing standards. “Mid-sized law firms are taking a more strategic approach to pricing – leveraging multiple rates to align with client needs and maximise profitability,” said Joshua Lenon, Lawyer in Residence at Clio. Firms that rely on a one-size-fits-all model risk undervaluing their services and missing key revenue opportunities.” Fixed fees take over As client expectations evolve, mid-sized firms are responding by moving away from traditional hourly billing models. Instead, they are increasingly offering fixed fees and subscription-based pricing structures, which provide greater transparency and predictability. With 64% of mid-sized firms now offering flat fees and 27% adopting subscription models, the emphasis on pricing clarity continues to grow. Additionally, 82% of firms that offer fixed fees apply them to entire matters, while 41% use them for specific activities within a matter. As more clients seek predictable pricing over traditional hourly rates, mid-sized firms are adapting their billing practices to meet these expectations, establishing themselves as forward-thinking, client-centred businesses. Big tech spend Mid-sized firms are making substantial investments in software, dedicating 2% of their expenses to technology—nearly double the U.S. Census industry estimate. Popular solutions include cloud-based storage, video conferencing, e-signatures, online payments, accounting software, and cloud-based practice management software. However, despite this commitment to modern tools, only 38% of mid-sized firms are utilising legal practice management software, significantly trailing behind the 71% adoption rate seen among smaller firms. This gap highlights a disconnect: mid-sized firms are investing in technology but overlooking the efficiency gains of a unified practice management solution. They’re buying the pieces but ignoring the puzzle. “Mid-sized firms are making big tech investments, but not always in the right places,” said Lenon. “They’re spending big on software, yet only 38% use legal practice management software—the backbone of an efficient firm. The takeaway is clear: Technology alone doesn’t drive innovation. It’s how you integrate it that matters.”