Your guide to law firm benchmarking

Kara Wen | September 14, 2022 | Articles

Many parents track their kids’ height with a growth chart or pencil notches on a door frame. Sure, they could just take a picture every year and see the visual difference, but that’s not the same as being able to quickly compare the old and new numbers. Without the comparison, the parents and child wouldn’t have a frame of reference to understand their growth rate (or lack thereof).

Law firm benchmarking functions similarly, bringing valuable context to the data about your different vendors. With GCs looking to cut legal costs by approximately 14-18% by 2024, now is the time for legal ops to nail down this critical spend management process. By ranking your own outside counsel information against current market data and internal legal spend, you can confidently determine where you get the most bang for your buck — as well as where you’re spending more than you objectively should.

The benefits of law firm benchmarking

Comparing your internal data with a law firm benchmarking report helps you make the most effective hiring and work allocation decisions, getting the most out of your money as well as people’s time and talent.

Greater cost savings

Law firm rates are rising. According to The American Lawyer, average law firm rates increased by 5.7% in 2021, and many firms targeted price raises between 5 and 10% in 2022. Benchmarking won’t control factors like inflation, but it will help you stretch your legal dollars and rack up savings in an uncertain economic environment.

When you have information on the market and specific law firm pricing in front of you, you can objectively determine which prices are fair across practice areas. You can start with a high-level metric, like the average hourly rates of firms, and then drill down into rate comparisons by matter and timekeeper levels. Not only do these insights help you make cost-efficient hiring decisions, but they also give you concrete evidence to support rate negotiations with current and potential vendors.

2021 data from ContractsCounsel shows that the average U.S. attorney rate is $275 per hour. So, let’s say you work with a four-attorney partner team that bills at $400 each, with each lawyer usually billing for around 25 hours a week. That’s $10,000 per attorney, meaning you’re spending $40,000 per week. If you negotiated their rates down or switched to a vendor that stuck around the $275 mark, that cost drops to $6,875 per attorney and a weekly total of $27,500—a weekly reduction of $12,500. Repeat this process across vendors, and watch those savings add up.

What happens without benchmarking: Excessive legal spend

If you don’t compare vendor metrics across firms and with current market data, how can you definitively prove that you’re not overpaying? Relying on educated guesswork rather than hard numbers means you’ll most likely end up draining your legal budget.

More productive vendor conversations and evaluations

Negotiating rates using concrete law firm benchmarking data also opens the door to objective discussions on vendor performance. And when you back up your concerns with facts instead of instinct, your vendors are much more likely to work with you on solutions.

Think about it. Which of the following requests would you see as more legitimate?

  1. You tell a vendor that you’re concerned about their productivity but can’t actually cite instances where they’re underperforming — it just seems like they’re slower than other vendors.
  2. You tell a vendor that you’re concerned about their productivity — the average copyright application takes 2.5 weeks to complete, but their average is 4 weeks.

And remember: the goal of law firm benchmarking isn’t to just say “you’re doing something wrong.” It’s to create a fair standard to evaluate performance and do what’s best for the business. Best case, you have an open conversation that results in better performance and a better partnership. In the worst case, where there’s no improvement, you at least have evidence to support ending the relationship and hiring a new firm.

What happens without benchmarking: Tense vendor relationships

Vague feedback can cause the demise of a working relationship. Asking someone to change rates or their behavior without showing why that’s a fair ask is a strain on both parties. Your vendors will get irritated that you’re essentially complaining to them without support for your claims, and you’ll be irritated that you have expectations that aren’t being met. It’s a lose-lose.

More engaged in-house counsel

Law firm benchmarking helps you identify fiscally smart opportunities, such as outsourcing repetitive, low-level work like document review to traditional vendors or alternative legal service providers (ALSPs). This then frees up in-house attorneys to focus on more challenging, strategic work that supports their career goals — and the company.

And as noted in a 2021 survey by Gartner, this type of engagement has serious business benefits:

“Highly engaged lawyers are 70% more likely to explore novel ways to help business partners meet objectives; they are 30% more likely to explore ways to improve department processes; 143% more likely to show discretionary effort; and 17% less likely to be actively looking for another job than their moderately engaged counterparts.”

Simply put, your most engaged employees are going to stick around, and that’s good for the entire company.

Check out our “When to give work to in house counsel or outside counsel” article for more helpful tips to master your legal staffing distribution.

What happens without benchmarking: In-house burnout

Many corporate legal departments are saving money by bringing work in-house instead of outsourcing to expensive firms. But this approach of blindly adding work onto in-house counsels’ plates without reviewing pricing data will cost you. Deloitte found that 69% of general counsel respondents admitted that their attorneys handle “too much administrative work,” and this overload of menial tasks can quickly cause in-house counsel to disengage, burn out, or even resign. And all three of these consequences take a significant toll on the bottom line.

The fundamentals of law firm benchmarking

The sooner you start benchmarking your law firms, the sooner you can improve your legal spending. By taking the time upfront to nail down your research and data analysis process, you’ll set yourself up with a solid foundation that’ll serve you as your team scales.

Solidify your data-tracking process

Legal ops teams have different maturity levels when it comes to collecting and reporting on legal analytics — and that’s okay. For law firm benchmarking, the goal is to have a system that best suits the department’s current needs, one that you can refine as you gain more experience.

Whether it’s your first time collecting data or you’re reviewing an existing process, the following questions will help you and your team maintain a consistent, accurate data-tracking method:

What data points do we want or need? For law firm benchmarking, you’ll generally focus on spend analytics like spend to budget and rates, but you can also choose to review points like matter lifecycles or diversity across timekeepers.

How will we collect these data points? There are usually three main tools that teams choose from when benchmarking: spreadsheets, legacy legal tech, or an AI-based legal solution.

  1. Spreadsheets: A free option but the most time-consuming and error-prone out of the three choices, largely due to manual data entry.
  2. Legacy tech: No new costs to acquire and saves you time by automating the data collection process. Has limits on what data points it can track and is prone to security vulnerabilities.
  3. AI-based legal solution: Requires a financial investment but offers customizable options for which data points you can track, pulls all your data into one place, and automatically calculates projected savings or losses.

How will we update these data points? The answer to this question is contingent on which benchmarking tool you’re using. For spreadsheets, you’ll have to assign certain individuals to be the primary data gatekeepers and will need to determine a set schedule for updating data. Legacy tech may also require someone to review the data for accuracy. With an integrated AI-based legal platform, your data updates in real time without you having to lift a finger.

Gather market data

Comparing your vendors against each other and against legal industry data gives you the complete picture you need to accurately rank your firms. You can conduct your own research on market reports from publications like The American Lawyer, or you can use legal business intelligence software that has the latest market data built into the platform.

Analyze the data, report on your findings, and make recommendations

Now that you have all of your information in front of you, it’s time to make sense of all those numbers with a benchmarking analysis report that summarizes your insights.

Start by reviewing the vendor and market data under each category, whether that’s hourly rates or average matter total. Flag outliers — costs that are way over or way under the averages — or, if you’re using a machine learning tool, review its auto-generated charts showing how each law firm stacks up. From there, you can start doing the math on where and how much you could potentially save (or let your AI do it for you).

Then, compile your insights into a report that covers how your legal spending tracks with the average rates and other data points and where it can be improved. If you have access to comprehensive legal software, you can do this with a few clicks of a button. If you’re working from a spreadsheet or legacy tool, you’ll have to do more manual data compilation on your end.

Make copies for your department manager, if you have one, as well as your general counsel. These strategic reports objectively affirm the value of legal ops and inspire further confidence from management, strengthening the team’s internal position as a modern business partner.

Law firm benchmarking helps legal ops demonstrate their value

Actions speak louder than words, and your ability to optimize legal spend speaks volumes to the C-suite. Law firm benchmarking helps you make data-driven choices supporting the overall financial health of the business, and in turn, you can then quantify and benchmark your own department’s progress on key objectives. This knowledge will help you identify strengths and weaknesses and create a roadmap for continued growth.

Learn more about legal ops scaling in our free whitepaper outlining tips for taking the initiative to create a positive reputation within your company.