SMB Legal Subscriptions: A Meteoric Rise
Legal subscriptions have become one of the fastest growing areas of legal technology. Find out how they work in this article.
The Legal profession continues to transform itself into a modern services industry. This is partly due to the technology and capital that continues to flow into the industry, transforming it into something more akin to the modern accounting industry. At the top end of town, we’ve seen strong adoption of new technologies and ‘non-lawyers’ (read accountants) aggressively pushing into the space. Not to be left out, there have been some large changes in the small law space as well. Sometimes overlooked due to its fragmented nature, small law accounts for over 50% of total legal spend annually and employs the majority of legal professionals. One major trend has been the surge of Legal Subscription offerings. This is a new concept in Australia, however one that has been operating for 10+ years in America and other countries around the world.
What is a legal subscription?
A legal subscription allows clients to pay a monthly fee to access legal advice, legal tools and legal documents. It is typically coupled with a software platform where clients can manage all of their legal work. Similar to a retainer relationship that a larger client might have with its firm, legal subscriptions are designed for smaller businesses.
Legal Pricing models have been through many iterations over the years. Subscription based billing (borrowed from SaaS businesses) is the next step in the evolution of legal business models. Yes, ‘retainers’ have been around in the legal industry for a long time. However, they were typically reserved for big corporates that could pay large amounts to have lawyers on call. But now, legal retainers are not just for fortune 500 companies. These days any startup and small business can access the same offering. In small law we have seen the progression from hourly billing, to value-based billing and now SaaS based billing. According to a 2019 Altman Weil “Law Firms in Transition” survey, nearly 98% of responding firms stated that at least some of their fees come from non-hourly billing arrangements.
Growth in subscription services
The subscription e-commerce market grew by more than 100 percent annually over the past five years, according to a study by McKinsey & Co., whether it’s the internet, a gym membership, telephone service, food or videos. It’s the new normal for many consumer software products. Netflix and Amazon Prime are both examples of subscription offerings. In the B2B space, SaaS offerings have also become commonplace through products such as Salesforce, Gmail, Telstra and many more. Customers are now accustom to purchasing their professional services via a subscription offering. So why not extend this to legal services?
There are two main reasons that unit economics finally work for legal subscriptions:
Tech enabled lawyers can now service 10x as many clients as before. Online legal services have no geographical borders (i.e. limitations) which allows lawyers to service clients in many different locations. The new norms brought by COVID-19 to workplaces and customer expectations mean that clients are now comfortable with the idea of seeing their lawyer online and there is no need for a brick and mortar office space, further reducing the costs and making legal subscriptions appealing.
Until now legal support has required manual bespoke services delivered in low volumes at high margins. Legal Platforms, DIY workflows and online systems now allow lawyers to service many more clients simultaneously, resulting in lower fees for the masses. The legal subscription model is high volume, low margin. The ‘unbundling’ of legal services also means less tasks which require lawyers, providing another significant cost reduction.
Learnings from building a Legal Subscription
With over 170,000 free users and 10,000+ paying subscribers on the Lawpath Platform, we have learnt a lot along the way about the legal subscription model. Here are some of our findings:
1. Legal is complex
Legal is complex and requires a higher touch than product only subscriptions such as Netflix or Amazon. Successful legal subscriptions use a hybrid model, where roughly 70% of the offering is completed by software and the remaining offering is still done by a lawyer. In order to keep strong margins, it’s very important to get the mix between product and service right. Pricing pays a large part in this and most importantly, sets the customer expectations.
2. Crossing the chasm
Shifting to this model will be hard for traditional operators as they need to cross the ‘valley of death’. Shifting to a model that creates long term predictable revenue will also mean that you have to forego short term transactional revenue. This requirement proves extremely hard for law firm owners to swallow when they are accustom to a certain annual EBITA. However, once you’ve crossed the chasm, you can find long term predictable revenue that has one special characteristic above all others…. it compounds.
3. Utilisation vs. Revenue
It’s all about utilisation. Traditional lawyer utilisation rates are abysmal and typically hourly rates are padded to take into account the large amounts of ‘non-billable’ time. Breaking the service down into short, low-touch service periods allows you to be precise when it comes to resource allocation and means your utilisation rates per lawyer stay in the top percentile. Additionally, it’s a fine balance between lawyer utilisation and attrition.
What do they cost?
We’re seeing legal plans ranging from $29.95 to $400 a month. Typically these plans are charged with an annual commitment ( pro tip: monthly payment periods do not work).
Features of a Legal Subscription
Typically the plan includes unlimited or capped calls with a lawyer. These calls are usually up to 30 minutes in duration and provide the client with a ‘lawyer on demand’. Instead of hiring a lawyer by the hour every time you have a question, the plans allow you to have a lawyer on hand to answer your questions. The plans usually include limited contract review where a client can get legal advice about a document on a limited number of pages or simple contracts. Most plans include access to legal documents and contract drafting software, document workflow and management such as storage, collaboration and eSignatures. It’s like having a lawyer on retainer without the $5,000 per month price tag.
How do they work at Lawpath?
At Lawpath, clients pay $69 per month (billed annually) to access unlimited calls with our lawyers, 300+ legal documents and our end-to-end contract management system, unlimited eSignatures and discounted prices on all other services such as business management and our other automated legal services. To further sweeten the deal Lawpath offers over $10,000 in partner discount offers including AWS, Canva, Xero, and SalesForce.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.