What is legal spend management – and why does it matter?
With cost control a top priority for in-house legal teams in 2024, there’s never been a better time to start taking control of your balance sheet. Read on to learn the basics of legal spend management – and the benefits to your business of getting it right.
Legal spend is front of mind for many in-house legal departments. According to Thomson Reuters’ 2023 State of the Corporate Law Department report, more than a third of in-house legal teams anticipate a rise in legal spend in the upcoming year – and a whopping 85 percent identify controlling outside counsel costs as a high priority.
Instructing outside counsel is an integral part of the in-house legal function, but good advice doesn’t come cheap. And with legal teams spending hours every day on the administrative side of the outsourcing process, the hidden cost of internal inefficiencies can give outgoing bills a run for their money.
In this article, we unpack the basics of effective legal spend management, before evaluating how legal leaders have traditionally approached the challenge. Finally, we consider the value of an alternative approach – one which offers 360-degree visibility and control over costs, eliminates inefficiencies, and ensures that your organization gets the most out of every dollar spent on legal.
Why is legal spend management so important?
Within the context of an in-house legal department, legal spend is simply the total cost of running your function – both internally and externally. Legal spend management, by extension, is the way that you keep track of, analyze, and control these costs.
The aim of good legal spend management is to optimize and fine-tune your legal budget without allowing funds to trickle down the drain. Achieving this means gaining oversight of where dollars are being spent, cutting out time-consuming manual processes, and making data-informed decisions which strike the right balance between in-house and outside counsel costs.
Legal departments are a critical strategic business partner, and controlling spend is a vital part of upholding this position. By being good stewards of finance who base their budgeting choices on solid data, in-house teams not only create a more efficient function and free up more time to contribute strategically, they’re also able to showcase and quantify their value to the wider business.
Where do in-house legal teams spend their money?
It’s well known that legal service provider fees are one of the main outlays for corporate legal teams. And with outside counsel rates on the rise, cutting down on outsourcing is often the first point of call for companies looking to reduce their spend.
According to Thomson Reuters’ 2023 State of the Corporate Law Department report, an average of 53 percent of legal spend was allocated internally in 2023, with the remaining 47 percent allocated externally. Compared to a far more even split back in 2021, the data signals a slow but steady reallocation of financial resources from outside counsel to in-house.
While it’s true that bringing more work in-house is usually a cost-effective move, it’s far from a silver bullet. Completely eliminating the need for outside counsel is unlikely – and there’s more than one way for legal teams to waste money.
To be sustainable, any good spending strategy should capture and interrogate all of your legal costs – and that means looking at what is being spent both outside and inside your legal department. To illustrate why, let’s take a look at where the average legal department spends their money.
In-house legal teams spend a lot on outside counsel…
There’s no denying it – the average in-house legal team typically spends a lot on outside counsel. According to The 2023 ACC Law Department Benchmarking Report (“the Benchmarking Report”), legal teams allocated an average of nine out of every ten US dollars of outside spend to counsel last year.
When you consider the rapidly increasing counsel fees outlined by the CounselLink Mid-Year Special Edition 2023 Trends Report: Update on Outside Counsel Billing Rates, it’s clear that outsourcing continues to be an expensive game. It’s therefore no surprise that 31 percent of respondents to The 2024 In-House Legal Technology Report expressed concern about the rising cost of outside counsel. However, this is only half of the picture.
… But a lot of money is spent in-house, too
Managing outside counsel also comes with a substantial administrative burden – one which can deliver a hit to your budget long before you pay counsel’s invoice!
While specialist categories of work (such as IP) are always likely to be outsourced, the reality is that modern in-house legal departments now overwhelmingly handle everything else – from legal operations to privacy and compliance. This leaves little capacity for the admin involved in working with outside counsel.
However, according to the Benchmarking Report, 99 percent of legal teams also handle invoice review internally – and it’s a time-consuming task. The 2024 In-House Legal Technology Report found that 60 percent currently spend over an hour per day sending requests for proposals via email to outside law firms, negotiating terms of instruction, and monitoring work in progress, while 62 percent spend over an hour per day manually managing invoices, approvals, and spend reporting.
The accumulation of all this time (or, in other words, legal waste) is worth a lot of money. With the average salary of Senior Counsel in the USA currently sitting at USD $218,000 (2023 ACC Law Department Compensation Survey) there is significant value to be gained by legal teams who reduce administrative overheads and run their workflows more efficiently. For example, a team of ten saving three hours a day on admin could be worth a hefty USD $817,500 to the business in just one year – and if you’re curious, you can calculate how much your own team could save right here.
This is all time which could be better spent on higher-value work – ultimately creating space for more to be brought in-house. The question, then, is how should in-house legal teams approach the problem? One of the simplest ways is to invest in technology – but many are yet to invest in the legal spend management software required.
Traditional approaches to legal spend management
Legal teams have traditionally tackled spend management through a variety of methods and systems – many of which have been around for decades. Some of the most common include simple manual processes (namely spreadsheets and emails used to manage RFPs, WIP, and invoices) and dedicated e-billing systems (point solutions built to manage billing and invoicing).
Both of these approaches have indisputable positives. Emails and spreadsheets are cheap, simple, and require little to no implementation, while established e-billing point solutions are custom-built for their job and invariably do it well. However, both take a fragmented approach to what is ultimately a multifaceted task and therefore fail to match what a holistic spend management solution can achieve.
Fortunately, there is an alternative – one which allows you to better manage and optimize not only your e-billing and legal spend with the benefit of data and insights, but all of your other legal work too. That alternative is the legal workspace.
Why choose a workspace approach to legal spend management?
A legal workspace, such as LawVu, is a legal spend management and e-billing solution integrated with contract and matter management and easy-to-use legal insights and reporting capabilities.
There are a multitude of benefits to be gained by taking this consolidated approach to legal spend management. A legal workspace like LawVu allows you to:
Increase efficiency
Alongside contract and matter management, legal spend management is just one part of the in-house legal function. Whether it’s through manual processes or point solutions, legal teams who rely on multiple systems to manage their workflows waste a lot of time in the ‘in-between’. Indeed, 70 percent report spending over an hour per day jumping between systems to gain a complete overview of their work and to determine priorities (The 2024 In-House Legal Technology Report).
When you consider the number of processes involved in managing outside counsel alone, this adds up to a lot of time – and that’s before you even consider the rest of your legal work. This isn’t just a problem for those working with clunky spreadsheets and emails; it’s also a blocker for those using point solutions, with 62 percent of respondents to the ACC 2023 Legal Technology Report identifying lack of connectivity between applications as their main pain point with legal software.
Because LawVu’s legal workspace streamlines your invoicing and legal spend management workflows into one comprehensive system along with contracts and matters, not only do you benefit from the efficiencies generated by its spend management capabilities, such as e-billing and invoice review, but you also reclaim the time previously spent jumping between systems and manually compiling data across all of your other legal work.
For legal teams already using LawVu for contracts and matters, adding in spend management capabilities is as simple as flicking a switch. And if you’re new to the workspace, a swift implementation process with minimal overheads gets you up and running quickly, delivering a high ROI on efficiency gains alone.
Streamline collaboration with outside counsel
Without a centralized system of management for outsourced work, it’s difficult to keep track of RFPs, monitor work in progress, or keep an eye on mounting costs. Scattered systems are not only a source of frustration for all concerned, they also lead to more wasted time as legal teams attempt to piece together scope, progress, and cost information from disparate sources.
Any legal spend management tool worth its salt should streamline both the selection of legal service providers and the management of WIP, including invoices and costs as they are incurred. Rescuing both of these processes from the chaos of email and bringing them into one central system, LawVu allows you to choose the right people for the job, set clear scope, timing and cost parameters, and track work as it progresses – as well as efficiently capturing costs and approving invoices. All of this ultimately streamlines the turnaround of outsourced deliverables and eliminates unwelcome surprises from your final bill!
Working with outside counsel is an act of collaboration; one which is far better nurtured by a clear system of work than by lengthy disputes over invoice line item review. LawVu doesn’t just give you flexible ways to work with counsel – it also aligns you with your internal team and business partners across all of your legal work. It’s not rocket science; when everyone knows where they stand, things run more smoothly.
Enhance visibility and data
Streamlining your work with outside counsel is a great step toward getting control of your legal costs. But in order to make robust budgeting decisions, you need visibility over your team’s entire workload and the data to ensure that both your short- and long-term spending strategies are backed up by evidence.
The good news is that LawVu provides comprehensive oversight of all your outsourced work, helping you stay on top of your spend and make smart choices in real time. For starters, AI-enhanced e-billing capabilities centralize your spend data and eliminate the need for manual entry, elevating your ability to review and capture key statistics.
Easy-to-use dashboards then make it simple to obtain a snapshot of your costs or delve into the details for more advanced insights and reporting. This data can be used to identify trends, select the right vendors, and inform conversations with existing legal service providers about rates and WIP, as well as to set (and stick to) realistic budgets.
On top of this, positioning your total legal spend within the wider context of all your legal work lets you save time on wider reporting, ensure that the right work is being done by the right people, and identify strategic opportunities to make your department more cost-effective across the board – all of which ultimately strengthens your legal function and helps you to showcase it to the wider business.
Ready to get started with legal spend management?
Ultimately, legal spend management should help your team spend less time on admin, control costs, and reclaim more time for high-value legal tasks. With a legal workspace approach like LawVu, not only will you reduce spend across your entire function and free up capacity to keep more work in-house, you will also ensure that you are getting the most out of what remains in the hands of outside counsel.
To learn more about how to access the benefits of a workspace approach to legal spend management and reduce your legal spend in 2024, click here. Alternatively, you can catch LawVu in action here?