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Legal Spend Management: Unveiling its Deceptive Complexity

Although the words “legal spend management” may not seem super clear, the concept is a lot simpler than you might think.

What is legal spend management?

Legal spend management is known as a process of keeping track of and analyzing in-house and outside legal costs. Often implemented by a firm’s legal operations team, legal spend management increases efficiency and looks to achieve continual future savings. To do this, law firms have installed systems that monitor the firm’s spending and pinpoint places where costs could be better controlled.

While legal spend management is typically referred to in the context of e-billing software, it actually has four different components:

(1) Legal e-billing Software: replaces and automates paper billing and invoices. Switching from manual systems to a cloud-based software package enables a firm to save up to 15% of its total legal spending in the first year of implementation. This part of the legal spend management process was developed over 20 years ago.

(2) Law firm management: is understood as all that’s necessary to manage the business side of the law firm. Law firm management helps firms set up systems to select and manage vendors and pay the firm’s bills in an organized manner.

(3) Timekeeper rate management: records and reviews all partners, associates, and paralegals and their roles. It looks at the firms that these individuals work at, what legal matters they have advised on, how many hours they have worked, their rates, and any proposed increases. This data is then compared against average industry data or a firm’s competitors and enables the legal operations team to understand what the rate is for an individual with a certain number of years of experience in a specific location.

(4) Legal spend reporting analytics: collects and interprets legal spending to help the firm understand exactly what they are spending their money on and where. While all of the components of legal spend management cut costs, looking directly at the financials of a firm provides a clear path for what to improve on.

How do you start practicing legal spend management?

In order to begin the legal spend management process, companies need to have a good overview of their entire legal spend. This is largely demonstrated through legal spend analytics. After understanding this aspect of their firm, typically the most effective one-time cost reduction in legal spend management occurs when a firm transitions from its manual system to a cloud-based e-billing software. When a firm’s data is spread across a variety of places, it increases human error and reduces efficiency. By switching to e-billing, a firm can spend a lot more time doing actual legal work instead of managing it.

According to a report from Thomson Reuters on the state of corporate law in 2022, last year’s total average legal spend was 0.12% of revenue for global organizations with revenues of more than $1 billion USD. Despite this being the average, the rate varies a lot based on the region. North America has the highest legal spend while Latin America has the lowest.

Legal spend management is an incredibly important asset of any law firm. Without it, firms would not only be able to cut lesser costs at a less efficient rate, but they would likely not know where to start. The bottom line is: if you do not have a legal spend management system in place for your firm, you need one.

*** Morgan Weber is an incoming third-year at the University of Virginia. She is double majoring in Media Studies and American Studies. Morgan is interning with Robus through a two-month intensive Onward abroad program, where she has learned many skills that will aid her in her dreams of becoming a TMT consultant.

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