3 Metrics That Reliably Predict Legal Spend Management Success
The success of a legal spend management strategy can be summed up in two metrics: actual spend and projected spend.
Keep the first number within touching distance of the second, and you’ll earn the appreciation of your CFO. Keep both numbers below a meaningful percentage of annual revenue, and you’ll win the admiration of the entire boardroom.
Understanding how your performance will be judged in the end is essential, but those top-level targets don’t necessarily tell you which tactics to select or adjustments to make along the way. The more valuable metrics to monitor are the intermediate indicators that correlate with long-term results.
Throughout our years of coaching customers, the following three figures have been the most consistent predictors of a team’s likelihood to achieve legal spend management success.
Matter-level budgeting rate
Equation: Matters created with a set budget / Total matters created
Correlation: Higher rate <> More success
A consistently high score on this metric immediately reveals several positive traits about an in-house legal team. For one, it suggests that they aren’t satisfied by tracking broad, department-wide budgets. Instead, their oversight and accountability extend all the way down to the individual units of legal work.
To arrive at a matter-level budget number, the team will likely have engaged with multiple internal stakeholders to review historical trends, gauge future demands, and gather benchmarking data. That kind of collaboration and transparency between departments bodes well for any business — and it’s a hallmark of those that rarely get caught off-guard by costly surprises.
Finally, this financial planning metric is also a litmus test for a team’s law firm relationships. A commitment to matter-level budgeting is a strong signal of a client’s proactive nature and comfort with communicating cost expectations. Such an early push for alignment not only increases the odds of keeping spend under budget, it sparks a valuable sense of strategic partnership as well.
Billing guideline compliance rate
Equation: New invoices submitted with zero violations / Total new invoices submitted
Correlation: Higher rate <> More success
Establishing formal billing guidelines is a fundamental step toward taking control of your legal spend destiny. It’s a clear and practical articulation of how you define the value of legal services. Results only come through consistent enforcement, however.
A legal team that inspires a high billing compliance rate among its outside counsel is clearly one that can communicate its principles. Strong ratings on this metric are an indication that law firms understand client expectations and are incentivized to focus exclusively on activities that deliver value.
In addition to reflecting the health of law firm relationships, guideline compliance has an even more direct financial impact in the form of unnecessary expenses avoided. Plus, time that would otherwise be spent rejecting and amending invoices can be reallocated toward more strategic tasks.
Average invoice approval time
Equation: Average time elapsed between invoice submission and invoice approval
Correlation: Less time <> More success
Teams overwhelmed by the basic burden of invoice review requirements are simply not in a position to plan and execute the more sophisticated moves that unlock legal spend management success. That’s what makes this simple metric so important to monitor.
Timely invoice approval is yet another downstream signal that a team has set and communicated its expectations effectively. It suggests partner law firms are submitting invoices that conform to billing guidelines, align with forecasted fees, and require minimal adjustments. (It’s also an indicator, of course, that the team has an efficient review system ready to capture and analyze what’s submitted.)
Then, assuming approved invoices are forwarded to Finance in a suitable format and punctual manner, a virtuous cycle ultimately presents itself.
Finance teams no longer dread accounting for legal spend, they devote more energy to refining it. Law firms no longer worry about whether a check will arrive, they focus on creating the value that will be captured in the next one. And in-house attorneys no longer lament the amount of admin work, they spend most hours working at the top of their license.