How To Choose, Track, and Report on the Legal Department KPIs That Matter Most
Legal department key performance indicators (KPIs) are more than numbers. They are the best way to tell your legal team’s story.
They demonstrate the value your team brings to the company, uncover areas where you can level up your team, and highlight your team’s successes.
Once your legal department knows how to speak the language of KPIs, you’ll find it easier to celebrate your team’s successes and align yourself with company-wide goals.
What Are Legal Department KPIs?
Legal department KPIs are metrics used to evaluate the effectiveness, efficiency, and impact of a legal department within an organization. They ensure the legal department’s day-to-day activities further the company’s broader objectives.
KPIs clearly communicate the legal department’s performance to other stakeholders, including the executive team and board members. This transparency builds trust and fosters better collaboration across different departments.
By closely aligning the output of your legal work with the company’s goals, you can use KPIs to quantify how your team supports and drives overall business success.
Legal KPIs also serve as a tool for continuous improvement. Visit these metrics regularly to identify areas for improvement, decide whether to adjust your strategy, or adopt new initiatives that better serve the organization’s evolving needs.
What Makes A Good Legal KPI?
A good legal department KPI should be simple, easy to measure, and time-bound.
Make sure you have easy access to the right data to regularly track progress toward your KPIs. Then, establish a clear, consistent method for retrieving that data and reporting on it.
To avoid data overload, aim for three to five department-level KPIs that impact the company’s goals most.
From that handful of department KPIs, you’ll then nest three to five team-level KPIs for each team within the legal department, which should all tie back to the department-level goals.
Depending on your level of sophistication, it may also make sense to set KPIs at the individual contributor level.
Choosing The Right Legal Department KPIs
You can’t choose the right legal department KPIs in a vacuum.
Start by understanding the broader objectives of the business. Speak with heads of other departments like sales, marketing, product, and human resources. Once you know about each team’s business plans and how they roll into the company’s overall goals, it’s easier to understand how to craft the legal team’s objectives.
The next step is to determine which performance metrics will most impact those company-wide targets.
For example, if the company aims to increase research and development, legal might set a KPI to drive faster matter cycles for intellectual property matters. If the sales team has a goal to increase sales volume or velocity, legal can set a KPI to reduce contract review time. Or, when the business is eyeing slimmer budgets, legal can prove its contribution through a KPI to reduce outside counsel legal spend as a percentage of company revenue.
Not every KPI has to be a reaction to other departments. There are many ways for legal to assess its work and determine KPIs to mark improvement.
Say the general counsel has noted an uptick in litigation. The solution might be to reduce risk by engaging with the product team earlier in the development process. Or, if your legal team expects significant regulatory changes in the coming year, you can set a KPI to hire internally or onboard new external counsel who can provide critical legal advice.
Legal Department KPIs To Monitor
The legal department KPIs you ultimately choose to track will be particular to your organization and its goals. However, there are some common KPIs used industry-wide to evaluate legal departments.
Many KPIs you’ll likely choose to track revolve around spend. Spend KPIs are typically the most straightforward data to measure and the most impactful for the company’s bottom line. Each of the following KPIs is useful in its own right, but you can select the most relevant depending on your business objectives.
Spend As A Percentage Of Revenue
This KPI provides a macro view of how much the legal department’s activities cost about the company’s earnings.
Use this insight to assess whether your legal spend is proportionate and sustainable relative to the company’s financial performance. In addition, you can track whether spend as a percentage is increasing or, ideally, decreasing over time.
Budget Vs. Actual Spend
This KPI measures the discrepancy between what was budgeted for legal matters and what was spent.
Budget forecasts vs. actual spend can be tracked at the overall, practice area, and matter level. Monitoring at each of these levels enables you to spot when spend is veering off-course compared to expectations and to take action early when certain types of work, or individual matters, are causing overspend.
Monitor this data regularly to proactively adjust your spending strategy and stay on budget. And remember, coming in significantly under budget for a given financial period can be as detrimental as being over budget.
Legal Spend By Department
You should also break down spend by company department or business unit, which helps you see what areas of the organization use the most legal services. Having a handle on legal spend by department helps you allocate budget and resources more effectively among departments.
The business units that drive the most spend are the best targets for identifying efficiencies. In addition, you can monitor and address relative increases in the consumption of legal services.
For example, if the percentage of outside counsel spend driven by your HR department is increasing, that might lead you to hire an employment attorney, or to see if you can instruct more employment work to alternative legal service providers.
In-House Vs. Outside Counsel Legal Spend
Use this metric to see if your balance of in-house and outside spending aligns with your company’s goals.
For example, if the legal department needs to cut the budget to align with company revenues, you can increase the ratio in favor of in-house counsel work. You can also find opportunities to cut external costs through negotiations, shifting work to more affordable legal service providers, or relying on your e-billing solution to identify overspend.
Cost Per Matter
In addition to using this metric to track increases or decreases in the average cost of a matter, you can slice and dice this information to learn the cost based on the type of matter, or the cost per matter by firm.
These additional measures give you different perspectives on what types of matters are most expensive, and which firms are most expensive to work with. With that data in mind, you can better manage your resources to fit your goals.
Matter Cycle Time
Shorter cycle times indicate efficient case handling, while longer cycles suggest bottlenecks or inefficiencies. By monitoring the average time to handle a matter, the legal department can identify areas for process improvements and set targets for quicker resolutions.
You should also track this same data by practice area. And you can analyze matters handled internally separately to matters instructed to outside counsel, to give you a better sense of where efficiencies can be made.
Percentage of Time Saved Through Automation
Tracking KPIs like time saved through automation helps justify investments in legal technology and underscores areas where further automation would be beneficial. It quantifies the percentage reduction in time spent on tasks that are now automated, like invoice review, contract management, or document reviews.
To get a baseline for this metric, ask in-house staff how long they are spending on manual processes before you bring in automation tools, and how much time they have saved after you automate the process. You can track the total number of hours saved, or state it as a percentage of the total in-house staff working hours in a given time period.
In this case, your clients are your internal stakeholders at the company. The best way to measure this data is through a short survey conducted at regular intervals.
Count of Matters Per Region or Business Unit
This metric helps you understand the trend in demand for legal services across the business and to take action accordingly. For example, an increase in employment matters within a particular region may suggest it’s time to hire employment counsel internally to manage the uptick in workload.
Matters Per Attorney
The goal here is not to overload attorneys with ever-increasing workloads, but rather to show just how much work the legal department is doing for the business and to decide if changes are needed such as a redistribution of workload, or hiring of more staff.
Progress Towards Key Initiatives
Not all matters are created equal. That’s why it’s best to track progress towards major initiatives as its own metric. Key initiatives depend on your company goals, but things like big-ticket litigation, acquisitions, or legal advice on major corporate restructuring projects fall into this bucket. Track percentage completion and major milestones to ensure the in-house team is on track to deliver the necessary legal services for these projects, and to demonstrate the value legal is providing to the business.
Matters by Risk and Complexity
Tracking matters by risk and complexity is another way to understand the different types of legal work the in-house team is delivering. The first step is tracking a risk and complexity score for each legal matter. Then, use these scores to see whether the profile of legal work is changing over time. For example, is the complexity of the work your team is undertaking increasing? This may suggest that additional resources are needed to manage these lengthy projects and provide specialist advice. On the other hand, if your team is dealing with an increasing volume of low-risk, low-complexity matters, it may be time to consider automation and outsourcing strategies.
Track Legal Department KPIs No Matter Your Team’s Size with Brightflag
Regardless of its size, every legal team faces the pressing need to manage and optimize its operations. Tracking key performance indicators is not just a large company’s game; smaller legal teams also have much to gain from this practice.
Legal department KPIs show how legal contributes to the company’s overall business goals and enables other departments to do their best work. They also help you to demonstrate your wins to other parts of the business.
With the right tools, like Brightflag’s enterprise legal management system, legal departments can successfully navigate the complexities of setting, monitoring, and reporting the most essential KPIs related to legal spend and matter cycles.
Equipping Yourself with the Tools That Matter
Brightflag’s platform provides an intuitive interface that compiles critical data such as legal spend compared to budget, cost per matter, and other vital metrics into easily accessible reports. This functionality allows legal operations teams to have a comprehensive, real-time overview of their department’s performance.
Gone are the days of cumbersome spreadsheets and manual calculations. With Brightflag, you can effortlessly track the progress of your legal department’s goals, adapt to changing business needs, and make data-driven decisions that align with your company’s broader objectives.
Brightflag equips you with the tools to keep your finger on the pulse of your legal team’s work, ensuring that you’re always informed, agile, and ahead of the curve. Book a demo today to get started.