How Do Economies of Scale Make Business Legal Documents Cheaper?

Economies of scale make business legal documents cheaper because the cost of drafting a template is paid once and then spread across thousands of buyers, while each extra digital copy costs almost nothing to supply.

Why Are Templates Cheaper Than Bespoke Contracts?

A bespoke contract is written for a single client. The solicitor’s time, research and drafting are paid for by that one buyer, so the full cost falls on them.

A template works differently. The provider pays experienced lawyers to draft a shareholder agreement or employment contract once, then sells the same document many times. The more copies it sells, the lower the drafting cost per buyer, a classic example of economies of scale.

Digital delivery strengthens the effect. Once a template exists, the marginal cost of supplying one more copy is close to zero, as no extra drafting, printing or posting is required. The main ongoing costs are keeping documents up to date as the law changes and writing guidance that explains how to use them.

Why Do Contracts Matter to Small Businesses?

Contracts reduce uncertainty. They identify who will perform which tasks, their due dates for payment and what will take place in case of any issues that arise, thus lowering the risk of disagreements and simplifying the process of settling disagreements when they arise.

Legal problems are common. Research for the Legal Services Board, published in May 2022, found that 32% of small businesses experience a legal issue each year, and about half either tried to resolve it alone or took no action. Just 10% of respondents viewed lawyers as cost-effective. 

No contract can cover every possibility. Economists describe agreements as incomplete contracts because writing terms for every future event would be impossibly costly. A well-drafted template reduces that gap for common situations, even if it cannot remove it entirely.

How Do Template Providers Price Their Documents?

Because buyers differ, providers often use more than one pricing model. A single consultant is likely to spend less on a library of contracts than a growing company with employees, suppliers and investors that can expect to produce many different document types annually (multiple contracts).

Offering both single purchases and subscriptions lets providers charge different groups different amounts according to how much they use. This is a form of price discrimination, in which buyers effectively sort themselves into the option that suits them.

In practice, PaperRock and similar providers sell solicitor-drafted templates individually as well as through an annual subscription, so occasional and frequent users each pay a price closer to the value they receive. Competitors take different approaches. Simply-Docs offers category-based subscriptions aimed at businesses that regularly need a wide range of documents, while The Legal Stop and Net Lawman let buyers purchase individual downloadable documents without an ongoing commitment. Docue goes further, building document creation, management and e-signing into a single digital platform.

The cost structure of the provider lends itself to subscriptions as well, given that the majority of the provider's costs are fixed. The ability to have a steady monthly subscription revenue stream helps offset the costs associated with drafting and updating documents no matter how many individual documents are sold each month.

What Are the Limits of a Standard Template?

A template is built for typical situations, not unusual ones. If a transaction involves complex ownership arrangements, overseas parties or significant sums, the standard wording may not reflect what the parties actually intend.

Jurisdiction matters too. The UK has more than one legal system, and a document written for England and Wales may not suit a business operating under Scottish law. Templates also need regular updating, as changes in employment law or company regulation can make older wording inaccurate.

Clear guidance notes reduce these risks by explaining what each clause does and when it may need adapting. Even so, the user carries more responsibility for getting the document right than a client paying a solicitor.

When Is a Solicitor Worth the Extra Cost?

The choice comes down to comparing costs with expected losses. As an illustration, suppose a business faces a 10% chance of a dispute that would cost £20,000. Its expected loss is £2,000. If a bespoke agreement costing £1,500 would substantially reduce the chance of that dispute, it may be the better investment.

In most cases, it is easier to use a template because the risks for standard documents are fairly known, and standard legal language adequately covers those risks. For large or unusual transactions or high-value transactions, it is often worth paying for specific legal advice.

How Should Businesses Choose the Right Level of Support?

The frequency of need and associated risks of acquiring documents will determine an organisation's strategy for document acquisition. A company looking for an investment has a different set of standards than an entity entering into its initial consulting contract.

Before relying on any template, businesses should check that it suits the relevant UK jurisdiction, that it is kept up to date and that its guidance is clear. Templates provide protection to business owners from the cost of the service without taking advantage of technology. For the most difficult and intimidating legal issues with the highest level of risk, specialised legal advice is available from attorneys who have advanced training in these areas.