More than half of corporate legal departments saw their budgets stay flat or decline in 2025, while worked rates from law firms went up 7.3%.
In-house legal leaders are worried about staff burnout, limited capacity for proactive risk management, delays in response times, and more, according to the most recent Thomson Reuters Legal Department Operations Index.
Legal departments are handling the same or greater work with the same or lesser budgets, all while outside counsel are raising rates faster than inflation and employment costs continue to grow. For most legal departments that means there isn’t a simple solution to managing their budget. You can’t just leave empty seats unfilled or slash whole categories of activity with outside counsel. Instead, you get to take on the complex puzzle of spend management.
Spend management is a discipline that businesses use to gain better control over their external spending. For corporate legal departments, spend management concentrates on understanding and controlling spending, primarily with external counsel. It can be an incredibly complex discipline, especially in departments with global scope or major regulatory burdens. Legal departments in smaller and growing businesses often manage spend manually, without software to manage the workload.
In other cases, legal teams have been shoehorned by their businesses into using general accounts-payable or invoicing solutions that don’t fit legal-specific workflows. At some point, both the manual and the general-business approach becomes too cumbersome and error prone for a legal department. You can’t get the insight you need on spend effectiveness, and you aren’t getting the level of compliance, LEDES formatting, or integration with matter management your team really needs.
That’s when it’s time to look at software solutions designed specifically for in-house legal spend management.
Why is this practice so complex?
The complexity creeps in as workloads and demands grow. One day you’re tackling big picture strategy questions, and the next you realize your outside counsel spend feels out of whack. Every business is different, so there isn’t a one-size-fits-all formula for your legal spend. Your spending must be tailored to the needs of the business.
Plus, the manual and confusing nature of invoice review can lead to significant overspending. And finally, it’s hard to keep track of market trends for terms, conditions, and rates, so you may not know if you’re getting favorable terms from your outside counsel.
So how do you get the clear vision you need to ensure you’re fitting all the right pieces together? How do you know what your spend management puzzle should look like when it’s complete?
- Start with the border pieces — the framing that tells you what you’re working toward. These value-to-the-business pieces help you assess your priorities and to-do list. They give you a clear vision of what the business cares about and guide your communication.
- Move to the efficiency pieces. These might be the large patches of blue sky or green grass in the puzzle — the ones that better define the spaces for more intricate elements of the scene.
- Then tackle the cost-control pieces. These are the intricate elements that bring the picture to life.
Value-to-the-business pieces of the spend management puzzle
Creating value for the business is the ultimate goal of all legal departments. Implementing a spend management strategy and system will be most valuable if you align it to the needs of the business.
To keep the department focused on delivering value to the business, your legal team must talk regularly with business partners about their priorities and focus the department’s work to support those goals and initiatives.
These conversations help keep your team focused on the most important activities. They can also help you shape your spend management efforts.
By tying spend management to value creation, you can find ways to reduce friction with business partners while driving superior legal outcomes. This is because you’ll always be able to explain the decisions you make about outside counsel — whether that’s changing firms or moving to fixed fee pricing — based on market rate trends and billing practices.
You’ll also be able to answer with certainty when a finance partner asks if you’re getting the best rate on a piece of legal work. You’ll know that you didn’t compromise quality for price.
Finally, you can gain confidence that your metrics and reporting align to the organization’s priorities. By starting with a deep understanding of what the business is trying to accomplish and what your partners care about, you can infuse your spend management strategy with that insight. With those value-to-the-business pieces in hand, you can orient your priorities, reporting, and communication to address their interests.
According to the Legal Operations Index report, the top metrics for law departments to track and report include:
- Total spend by law firm
- Total spend by matter type
- Number of legal matters opened and closed
- Forecasted or budgeted spend vs. actual spend
- Total spend by business unit
- Total spend by practice group
- Legal spend as a percentage of revenue
- Quality of legal outcomes
- Spend to budget by law firm
- Savings from invoice review/reduction
When the legal department at Target Corporation took on the spend management puzzle, they felt like they had been “living in the Stone Age before,” according to Brian Sisterman of the Law Operations team. With a modern spend management system, “We gained a really good, in-depth, focused view of what the law department was doing, and why.”
Efficiency pieces save you time for more complex tasks
Incorporating a spend management strategy and system can also help your team work more efficiently on routine tasks so they can devote more time to complex challenges and projects.
You or one of your teammates is likely spending significant time reviewing invoices from outside counsel to be sure they comply with billing guidelines. You may be tracking information in emails and spreadsheets, scrambling to find it when the time comes to review the invoice.
Or maybe you’re not comparing invoices to terms and conditions at all — you may be crossing your fingers, hoping your law firms are following the terms you agreed to. That’s a risky approach, given how much opportunity for error exists in the law firm invoicing process.
A solid spend management system can help you and your teams efficiently and accurately process invoices without spending all day on the task. While you’re reviewing them, you’ll be able to see clearly where an invoice follows your billing guidelines and procurement policies, and where it deviates.
This transparency reduces your confusion and investigation time compared to looking at so many indistinguishable line items on the invoice. It opens straightforward conversations with law firms when invoices need correction. It would be unsustainable to maintain this level of detail with a manual approach to spend management.
Cost control pieces help you shine
You’ve addressed the frame of the puzzle — the business needs — and the day-to-day work — efficiency in invoice review.
There’s another set of puzzle pieces you need to assemble — and some might call this the fun part. This is the complex and intricate parts of the puzzle — the windmill or the rainbow. In a spend management puzzle, these are cost control pieces. They are the parts where you work strategically and thoughtfully to get a fair rate and where you’re making smart decisions about which matters to send to outside counsel.
Your spend management approach ideally includes comparison shopping via benchmarking data. Or maybe consulting with your counterparts at similar companies to see what they pay for matters like yours. The information exists, but it’s awfully hard to get enough of it when you’re in a time crunch. Sorting through piles of pieces and data is time-consuming.
It’s also fraught with mistakes and shortcuts. It’s not enough to have the right pieces somewhere on the table. You need them at your fingertips when you’re ready for them.
This was the experience for Danish investment company VKR Holdings. The legal team implemented Legal Tracker and saw immediate results. “Our external legal spend has decreased by 35%, and I estimate at least one third of that is attributable directly to the implementation of Legal Tracker,” said Jesper O. Pedersen, Vice Group General Counsel, Senior Group Legal Director, Investments & Commercial. “I expect our savings will be even higher going forward working with budget and effectively managing the time spend by external counsels.”
A modern spend management solution can give you benchmarking data to help you negotiate favorable rates and fee terms based on real market data. This is much more effective than relying on your own historical records or guesswork. The solution can also help you analyze your historical workload by matter type and cost to see where there’s sufficient volume to bring those matter types in-house.
A full picture — and a clear vision
Your spend management puzzle is complete. You have a clear vision of what the business needs from your legal department— what value to the business looks like. You’ve implemented efficiency measures that ensure your team can quickly and accurately review invoices and ask for adjustments with confidence.
And you’ve got reliable insights at your fingertips to take on the tricky intricacies of negotiating rates and terms. You have defined a crisp border, filled in the blue sky, and brought the heart of the image to life.
For example, Netflix took on this puzzle and is now reaping the benefits. “We have a single workflow, one process, one route to get timekeeper rates approved and data capture. With very little impact on people’s day-to-day lives,” says John Elliot, manager of Legal Operations. “We get amazing results!”
What does it take to get there? A commitment to improving your spend management practices and an investment in a system that can support you. Only a spend management software solution can help you create a real line-of-sight between your finances and team effectiveness. It provides reporting, benchmarking, and workflow tools you can use to show and create even more value for the business while staying within tightening budgets.
Learn more about best-in-class spend management from Thomson Reuters.
