Legal spend management: how to reduce your legal spending
Legal spend management is the practice of tracking, analyzing, and optimizing costs incurred by your in-house legal departments and their outside counsel. It involves creating and maintaining systems to keep track of where you spend your money and identifying opportunities to optimize costs.
By introducing better legal spend management practices in your organization, you can reduce your legal spending and save up to 26% on accrual estimates. A centralized database, automated billing, a dedicated budget, and clear KPIs to measure vendor performance will help you achieve this goal.
Centralize spend data
Collecting spend data in a central location makes it easier to analyze your data and to spot trends/opportunities in spend. If your data is scattered over multiple applications, your team will have to switch between apps when working with data, resulting in increased chances of human error and reduced productivity. Having centralized data means consistency, security, faster reporting, improved strategies, and better execution of plans.
The best place to house all your spend-related data is in legal spend management software. Legal spend management solutions are cloud-based platforms that allow general counsels and in-house legal ops professionals to monitor and manage their matters, vendors, spend, and documents, as well as create reports and more from a special dashboard.
So instead of using Microsoft Excel to maintain spreadsheets, Tableau for data visualization, and QuickBooks for invoice management, you will be using one software application that will deal with all of it.
Some spend management solutions also allow you to request budgets from outside counsel plus track and approve invoices. That way, you’ll have records of your budgets in addition to actual spend if you need to analyze your spend to budget in the future.
Set a legal department budget
Budgets help you benchmark and control spend with ballpark figures. Once you are operating within a budget, you start to question how much certain vendors cost and whether or not they are earning their keep.
Follow these steps to set useful budgets for your legal department:
- Look at expenses from previous years to set ballpark figures/estimates – Annual administrative fees (e.g., corporate filing fees) and preexisting alternative fee arrangements (e.g., flat fees) will stay the same, so it’s safe to budget those at the same amounts. For the rest, you can use current and past estimates. This initial budget is meant to serve as a starting point you’ll continue to tweak.
- Talk to people from other departments to spot issues that may affect spend – Some common scenarios that may give rise to new fees include new products that’ll need patents filing, trademarks from the product department, joint ventures, or partnerships in marketing and promotion.
- Talk to outside counsel to get estimates for predicted tasks – Ask your vendors what the costs for upcoming matters would look like.
By looking at historical data and talking to vendors and stakeholders, you can create a budget that accounts for recurring as well as predicted and one-off legal matters.
Set up and enforce billing guidelines
Set up billing guidelines to mitigate surprise fees, unauthorized charges, and late invoices and share them with your vendors. This will ensure you only get charged for what’s due and when it’s due, so your monthly budget doesn’t get thrown off.
- An introduction – A brief rundown of the going-into-effect date of your billing guidelines and a statement of your right to modify or reject invoices that don’t follow the guidelines.
- Staffing information – Details about who’s in charge of hiring, appropriate staffing levels for certain projects or task types, and the approval process for staffing changes. The goal is to dictate the appropriate staff level for tasks, so you don’t pay partner-level rates for tasks that can be completed by a paralegal or an associate.
- Invoicing and billing procedures – Details about how outside counsel should submit invoices (through an e-Billing platform, for example) and how to format those invoices. For example, include matter name and ID, then a description of work, then timekeeper name, title, rate, etc. This is also a good place to state billing codes to encourage task-based billing and accuracy.
- Timing requirements – Information on the appropriate time to send an invoice. For example, not more than two weeks after work is completed.
- A signature page – To sign the agreement and indicate consent of all parties involved.
Once set up, you should be able to enforce billing guidelines in your e-Billing software.
Automating billing reduces overbilling by avoiding manual billing errors, such as not sending the invoice on time, using the wrong name on the invoice, not itemizing services correctly, and so on. The most effective way to automate billing is to use e-Billing software. We’ve seen customers save an average of 8.4% in legal spend thanks to e-Billing.
Look for an e-Billing software with the following capabilities:
- Metrics tracking – So you can easily analyze and optimize legal spend beyond auto-billing.
- Easy reporting – The ideal e-Billing software will have robust reporting capabilities that let you filter metrics to create useful reports in a few clicks.
- Free training and support – Check for responsive customer support and extensive training material on how to use the platform. One of the best ways to sample customer support and training is to sign up for a free demo of the software.
- Pre-built integrations – You’ll need to integrate with your existing apps such as Outlook, IPfolio, or iManage, for example, so you don’t duplicate your entries.
Monitor spend and vendor performance
Monitor spend and vendor performance to find opportunities to reduce spend. Specifically, create a view that compares your spend across vendors against their performance to determine which vendors generate the best returns. This will help you reduce spend without affecting service quality.
Tracking spend is easy: you can likely track your spend on each vendor by project, quarter, and year in a spreadsheet. Vendor performance is a different story. You will need key performance indicators (KPIs) based on your priorities.
Most legal departments track across a series of KPIs such as:
- Cost per lawyer
- Cost per matter
- Matters per lawyer
- Budget vs. actual spend
- Success ratio for cases solved
- Time taken to resolve matters and disputes
You can also go for qualitative KPIs and survey your in-house attorneys to collect feedback on your active vendors. Use their responses to grade each of your vendors on the KPIs you find most important. This feedback becomes hard data that quantifies vendor performance, which you can compare against your vendor spend data to see which vendors are delivering adequate value and which aren’t.
You can track this data in a spreadsheet, but legal spend management software will make your life much easier.
The above dashboard is a good example. Here you can see an overview of your top vendors and practice area, among others. From there, you can filter to find specific data you want.
Legal spend management software will save you time, headaches, and dollars
Legal spend management is your best line of defense against rising legal costs, but it can be complex to do manually. With the right tool and the right process, legal spend management becomes easy.
Consider using a spend management solution like SimpleLegal to improve efficiencies and reduce your legal spend.