What is legal spend management?
Legal spend management is the process of reviewing, tracking, analyzing, and reporting — on both in-house and outside legal costs — in a modern department, usually implemented by the legal operations team as a law-department-specific software package. The goal is to increase efficiency of the legal department, keep track and identify opportunities to reduce costs, and ultimately create spend management strategies on how to achieve sustainable savings for years to come.
Legal spend management has four main components:
- Legal e-billing software. Replaces and automates paper billing and paper invoices from law firms. Legal e-billing can be as simple as a law firm portal to upload PDF or other electronic invoices, or it can be more sophisticated, directly receiving LEDES invoices from the law firm’s billing software, which could also be reviewed and audited with the assistance of artificial intelligence (AI) to enforce outside counsel billing guidelines.
- Law firm management. Intersects enterprise procurement and sourcing processes with law department needs, allowing law firms to be onboarded into enterprise vendor management and accounts payable systems — while also recognizing what’s unique about the relationship between in-house counsel and outside counsel, supporting firm selection, diversity and inclusion, and volume discounts or alternative fee arrangements (AFAs).
- Timekeeper rate management. Takes inventory and review of all timekeepers, their roles, their law firms, legal matters worked on, hours worked, agreed rates, and any proposed increases. Timekeeper rate management excels when paired with industry benchmark data or comparisons with peers, allowing legal operations teams to understand the going rate for a given legal practitioner with X years of experience in Y domain in Z location, all while considering expected outcomes and contrasting those same timekeeper rates across law firms of different shapes and sizes.
- Legal spend reporting and analytics. Provides the ability to slice and dice all corporate law department spend data. Navigate general counsel dashboards, report legal budgets to stakeholders, support data-driven decision making, and export data to Excel, Power BI, or Tableau.
All in all, legal spend management is a foundational building block of any enterprise legal management (ELM) strategy. To get started with ELM, most corporate legal departments rely on legal spend management software — both to save on outside counsel costs and to better track overall costs and matters.
How much do companies spend on legal fees?
According to the 2022 State of Corporate Law Departments Report from the Thomson Reuters Institute, total legal spend is, on average, 0.12% of revenue for global organizations with revenues of more than $1 billion. This rate varies significantly by region, with North America having the highest rate and Latin America the lowest. This rate also varies greatly by revenue band: U.S. organizations under $250 million in annual revenue average 2.03% of revenue in legal spend, while U.S. organizations over $6 billion average only 0.16% of revenue.
Measuring spend relative to revenue allows law department leaders to monitor movements in spend relative to corporate growth and also to benchmark their spend to peer organizations.
How can companies reduce their legal spend?
To identify opportunities for effectively cutting costs without sacrificing quality of legal service, companies need a comprehensive overview of their entire legal spend so they are able to provide predicable forecasts of their legal budget.
The most effective one-time reduction in legal spend typically comes from the transition from manual systems to a legal spend management software package. The resulting better management of the outside legal counsel spend will often allow enterprises to save as much as 15% of their total legal spend in the first year of implementation.
But, there’s more. General counsel and legal operations teams are approaching legal spend management with multiple benefits in mind — all resulting in cost or resources reduction:
- Automate legal e-billing and legal invoice review. Automates the submission of legal invoices, simplifies legal invoice review and approval, and integrates with accounts payable systems for hands-free payment of legal invoices.
- Reduce legal spend and control law firm costs. Reviews legal invoices with AI, giving a clear view of how well each of the line items meet the billing guidelines set by your law department for your law firms. Timekeeper rate management helps provide an understanding of what you actually pay contrasted with what you should pay, based on industry benchmarks, peer data, and historical data.
- Comply with sourcing and procurement teams. Manages the administration and bureaucracy of sourcing and procurement compliance — from law firm onboarding to annual compliance work — so you can meet the needs of enterprise vendor management.
- Decide which legal work to perform with in-house counsel or outside counsel. Provides the legal data and legal reporting to support the critical data-driven decision of which legal work to perform in-house versus which to perform with outside counsel — including firm selection, volume discounts, alternative fee arrangements, timekeeper rate management, and matter budgeting.
A legal spend management software system helps with more than just cost savings — it’s the opportunity to spend more time doing legal work and less time managing legal work.
What are the benefits of legal spend management software?
Before corporations invest in legal spend management software, they should consider the overall benefits for the company and determine where their organization’s most serious problems currently are. Some of the largest benefits of a spend management system are:
- Legal billing. Saves time and money with automated legal invoice workflows and auditing tools.
- Matter management. Keeps legal matter information located in an instantly searchable, unified repository.
- Reporting and analytics. Identifies what peer companies spend and proves the value of the legal department with real-time data.
How can data from legal spend management software help to reduce legal spend?
With legal spend management software, legal departments can create detailed real-time reports, dashboards and data to provide a comprehensive overview of the organization’s legal spend, budget, and allocation of legal work. This data gives business leaders the tools to:
- Measure performance, review spend and budget. Shows the leadership team a 360⁰ view of their corporate legal department's spend, budget, and allocation of legal work so they can make precise, data-driven business decisions.
- Benchmark data and mitigate risk. Compares your organization against the highest-performing legal departments from around the world with over $150 billion in legal spend. Isolates specific types of work by spend, department size, company size, specific type of work, rates by metro and classification, and firm performance by substantive law.
With a comprehensive overview, you can show how both your in-house team and your outside law firms are performing and how much value they are each providing to the organization.
How can your legal team reduce legal spend?
Introducing better legal spend management through a comprehensive software system is the first step to reducing your legal spend. To truly build a high-performing law department and deliver superior value, your legal operations team needs to begin looking for technology solutions to help automate manual tasks and have visibility into all aspects of a matter, from initial intake to final invoice.
Legal Tracker, the leading legal spend management software, gives you comprehensive matter management, effortless legal e-billing, custom analytics, and complete integration with your existing software and systems — so you can start saving on your legal costs from day one!