The most recent – 2026 – Citi Hilderbrandt Client Advisory Survey Report published earlier this month contains some interesting commentary on how US law firms faired in 2025. None more so than the finding that:

a growing number of firms estimating that more than half their revenue will come from pre-negotiated discounts. (page 23)

Pre-negotiated discounts

The Report does not explicitly define “pre-negotiated discounts”; however it refers to alternative fee arrangements (AFAs) as including fixed, capped or blended rates. It is, therefore, reasonable to interpret “pre-negotiated discounts” as encompassing agreed reductions to standard charge-out rates, volume-based discounts and other upfront pricing concessions.

Viewed positively, this trend signals a shift away from reactive, end-of-matter discounting towards earlier and more deliberate pricing discussions. In principle, this should create a stronger foundation for meaningful conversations about value-based pricing, particularly where clients are seeking price certainty, predictability and risk sharing. From that perspective, pre-negotiated pricing is not inherently problematic — and may in fact represent a necessary transitional step.

The more concerning implication, however, is that for many firms these discussions appear to be anchored primarily in discounting, rather than in value definition. Where pricing conversations begin and end with rate reductions, firms risk reinforcing a price-taker mindset rather than asserting their role as price-setters. Left unchallenged, this dynamic contributes to margin erosion, commoditisation of legal services and an imbalance in client-firm relationships that becomes increasingly difficult to unwind.

AFAs as a pricing option

Despite persistent commentary throughout 2025 that artificial intelligence (ai) will fundamentally disrupt — or even eliminate — the billable hour, the data in this Report suggests otherwise. The proportion of revenue derived from AFAs has remained effectively flat, increasing only marginally from 23.5% in 2024 to a projected 23.6% in 2025.

Setting aside the fact that many commonly cited AFAs are, in reality, variations of the billable hour by another name, and acknowledging that it may still be too early to fully assess AI’s structural impact on pricing legal services, one conclusion is unavoidable: the billable hour remains very much alive.

The way forward

With 74% of firms expecting a growing proportion of revenue to come from AFAs by 2027, the issue is not whether pricing models will continue to evolve, but how deliberately firms choose to engage with that evolution; and whether AFAs are used as strategic tools or simply as discounted billing mechanisms.

In sum

Taken together, the findings in this Report further highlight a profession at an inflection point. While the billable hour continues to dominate, the steady rise of pre-negotiated discounts and the anticipated growth in AFAs suggest mounting client pressure for greater certainty, transparency and perceived value.

The critical question for law firms now is not whether they should offer alternative pricing arrangements, that horse has bolted, but whether they are prepared to move beyond discount-led negotiations and engage in genuine upfront value-based pricing conversations.

Firms that continue to compete primarily on price risk entrenching themselves as price-takers in an increasingly sophisticated procurement environment. Those that invest in articulating value, pricing outcomes and structuring risk intelligently will be far better positioned to protect margins and strengthen client relationships in the years ahead.

The decision on the way forward now rests with the firms themselves.

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