Clio's annual report on legal trends for solo and small law firms, published Monday, found that while 71% of solo practitioners and 75% of small firms are now using AI to complete legal work, fewer than 33% of firms have increased revenues with AI, compared to 39% of Mid-Law firms and nearly 60% of BigLaw firms.
"The firms seeing the strongest returns from AI aren't just adopting it," Joshua Lenon, the lawyer in residence at Clio, said in a statement on Monday. "They're rethinking their business model to optimize for the current moment. They're integrating AI across operations and using the time it saves to attract and serve more clients. They're using specialized legal AI that understands the law."
Perhaps a contributing factor to smaller firms' lag, the report suggested, is that a majority of solo and small firms haven't adjusted their pricing in response to AI. Others have used the technology's efficiency to transition into flat-fee pricing, which is preferred by clients and can drive revenue growth, the report said.
While over 50% of BigLaw firms surveyed by Clio and nearly half of the Mid-Law firms said they had made pricing changes, 86% of solo firms and 78% of small firms said they'd made no pricing changes.
"The problem is that AI makes the hourly billing model increasingly difficult to sustain," the report said. "If AI helps you complete a billable task in one hour instead of five, and you bill by the hour, you've effectively handed your client an 80% discount. The efficiency gain belongs to them, not you."
In general, the report said, small firms and solos have been making slow strides away from hourly billing. Since 2019, solo practitioners billing exclusively by the hour fell from 55% to 50% and small firms only billing hourly dropped from 53% to 43%.
The report also flagged that most small firms and solo practitioners have no formal AI usage policy in place, while over 75% of firms with more than 200 employees reported having some kind of policy.
The biggest challenge smaller firms reported in setting up specific legal AI systems and usage policies was having the time to explore new features, as smaller firms often don't have a dedicated IT department.
For the report, Clio surveyed nearly 3,000 legal professionals, including lawyers, paralegals and administrators, with 1,202 of the respondents being Clio customers. Clio said it also aggregated and anonymized data from tens of thousands of legal professionals in the U.S. to better understand how firms are billing their clients.
Clio announced in June of last year that it had acquired vLex — which develops the legal artificial intelligence platform Vincent AI — for $1 billion. The legal tech company said at the time that the transaction that it would introduce new AI capabilities to its legal service offerings.
According to Law360 Pulse's 2026 AI Survey, 70% of attorneys at law firms of any size reported using AI at least once a week as a part of their jobs, which was a sharp increase from the previous year. But the report also showed that lawyers are growing increasingly ambivalent about the technology, perhaps because they are running into problems as the industry uses AI in more advanced ways.
Smaller firms in particular are also most likely to be disciplined for the greatest AI pitfall: hallucinations. In 2025, there have been at least 160 court orders either punishing or threatening to punish lawyers over instances of AI hallucinated content, according to a database set up by French data consultant Damien Charlotin. A majority of those were small firms.
The Clio report found that while a majority of small firms and solo practitioners reported using AI, most were still relying on general purpose tools like ChatGPT rather than AI specifically built for legal work, which could be a factor in why so many small firms are running into trouble.
"These tools can save time on basic tasks, but they come with real limitations: They require constant re-prompting, lack legal context, and create confidentiality risks if sensitive client data is entered into a public platform," the report said.
--Editing by Rich Mills.
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