Law Firm Benchmarking: What It Is and How to Start

Outside counsel engagements have a habit of testing just how much uncertainty a professional relationship can tolerate.

One side has specialized skills that are difficult to evaluate. The other has nuanced requirements that are difficult to communicate. And both are at the mercy of outside forces that could instantly change the cost, duration, and result of their collaboration.

Given this reality, it’s no wonder law firm benchmarking is finding fans within the legal community.

The classic business practice promises standardization, predictability, and several other attributes rarely ascribed to outside counsel relationships. And despite its wordy and potentially intimidating label, law firm benchmarking is more approachable than it sounds.

What Law Firm Benchmarking Is

Law firm benchmarking is the business practice of evaluating similar vendors against the same criteria, for the purposes of drawing valid comparisons and developing performance standards.

Evaluators can then use these standards, or “benchmarks,” to rate each individual performer more objectively and efficiently.

Within the context of law firm benchmarking, trade groups, and consultancy firms have historically led the majority of evaluations. In more recent years, however, corporate legal departments have started formalizing their own initiatives to better assess outside counsel performance.

Staffing, compensation, and client satisfaction remain the most commonly used criteria across all law firm benchmarking programs.

Why Law Firm Benchmarking Matters

Meticulous measurement has rarely been a phrase associated with outside counsel services.

Demands are urgent, stakes are high, and lawyers have little tolerance for administrative distractions.

But lax oversight is a luxury today’s in-house legal teams can no longer afford.

Peers in every other business department have spent the last decade embracing data-driven management philosophies. And now company executives, currently steering their organizations through an era of unparalleled uncertainty, need legal to do the same.

The good news is in-house legal teams have two powerful trends working in their favor: The expansion of legal operations and the evolution of legal tech.

The prospect of launching a law firm benchmarking program feels much more feasible to teams who embrace both developments. And those who have done so usually credit the practice with supplying exactly what most outside counsel relationships are missing.

Accountability

Installing a formal measurement system offers two immediate advantages.

First, it naturally raises outside counsel performance. Whether the impulse is conscious or subconscious, people who know their progress is being tracked are more driven to improve it.

Second, it establishes business credibility. It proves that Legal is as committed to monitoring and improving vendor performance as any other department.

Predictability

Benchmarking also reduces uncertainty for three key stakeholder groups.

Vendors no longer have to wonder what clients value or how they measure performance. Criteria are clear, specific, and consistent. And that fundamental clarity removes countless potential anxieties and frustrations from the relationship.

In-house legal teams, meanwhile, enjoy the efficiencies of only having to define and communicate expectations once. The pattern for all future performance-related conversations is set from the start.

Finally, as in-house legal teams gather progressively more benchmarking data, they can provide business executives with increasingly precise forecasts. Projected costs, timelines, and outcomes all fall within narrower ranges.

Objectivity

Lawyers are deeply invested in maintaining equitable systems and making impartial judgments. Benchmarking helps ensure both remain pillars of outside counsel relationships.

Even performance evaluators with the best of intentions have personal biases — whether known or unconscious. And the fixed and quantitative nature of benchmarks protects all parties against that social risk.

Prioritizing objective insights over subjective observations also has obvious practical advantages.

Structured data enables legal departments to conduct more efficient and sophisticated analyses. And conclusions drawn from quantitative methods are often easier to explain and defend to business executives.

Transparency

The notion that outside counsel wants to evade performance analysis has always been a myth. In reality, most law firms want more frequent and actionable feedback than their clients are currently providing.

Benchmarking offers two solutions here. It removes vendors’ doubts about how their work has been received. Plus, it packages feedback in a constructive format that promotes healthy dialogue.

Top Applications of Law Firm Benchmarking

Building a strong law firm benchmarking program does require a certain level of investment. It would be disingenuous to suggest otherwise.

However, the resources committed are quickly offset by the value added.

At each stage of outside counsel engagement, referencing benchmarks helps in-house legal teams derive more confident answers to their most pivotal questions.

Vendor Selection

• Which vendor is most likely to deliver an efficient, effective result for the business?

Matter Scoping

• How long will it take to resolve the matter with satisfactory results?
• Which phases and activities will likely be required along the way?

Budget Setting

• How much money should we allocate to ensure we achieve the desired result?
• How should the overall budget be distributed across phases and activities?

Matter Staffing

• How should work be distributed across roles and seniority levels?
• Which timekeepers should deliver which services?

Fee Negotiation

• Which billing model is best suited to this type of matter?
• What is fair and reasonable compensation given the value provided?

Performance Evaluation

• Where is a given law firm excelling beyond its peers?
• Where is a given law firm falling behind its peers?

Panel Formation & Consolidation

• Who are the few exemplary partners who should lead most external matters?

How to Begin Law Firm Benchmarking

Now that you have a better understanding of benchmarking as a concept, the next step is making it a practice.

As we suggested earlier, you don’t need the resources of a large global consulting firm to get started. You just need to implement a few thoughtfully designed systems.

Define Your Criteria

The core categories of law firm benchmarking criteria are:

• Staffing
• Compensation
• Client satisfaction

Staffing criteria focus on individual demographics (ex., role, seniority, diversity) and how work is distributed across the team.

Compensation criteria assess timekeeper rates and billing behavior (ex., budget compliance).

Client satisfaction criteria analyze business results (ex., resolution, settlement, acquisition) and service traits (ex., domain expertise, communication style).

There are two common mistakes to guard against at this stage— limited breadth and excessive depth.

Some teams may be tempted to ignore one or two of the core categories altogether and focus on urgent interests. Departments given a cost control mandate by executives, for example, may decide to measure compensation criteria only. But this limited perspective would negate the value of the exercise.

The ultimate goal of law firm benchmarking isn’t gathering isolated insights. It’s developing a holistic understanding of outside counsel relationships.

At the same time, teams should be wary of trying to track too many metrics. There’s no point in building a machine you won’t have enough energy to maintain.

So embrace constraints at the start. Limiting yourself to no more than three metrics in each category will force your team to agree on what matters most.

Capture Your Data

The next consideration is how to source and track the data needed to build your intended benchmarks.

In many cases, clean and actionable data is already available inside your existing workflows. The vendor invoices you receive, for example, already hold the answers to most compensation criteria.

In other cases, potentially useful data is currently sitting in an unstructured format. Within those same law firm invoices, for example, line item narratives are filled with qualitative context that could inform staffing criteria.

In a few cases, the data you need does not yet exist and will need to be generated. Creating a standardized survey for in-house attorneys to complete at matter close, for example, is an easy and valid way to seed client satisfaction criteria.

Once you’ve confirmed the source of each data type, the next challenge is ensuring accurate and efficient data collection. And it’s at this stage where an overreliance on manual methods becomes a strategic risk.

Let’s use blended hourly rate as an example. It’s one of the most useful metrics to monitor for a legal department interested in benchmarking cost efficiency. But the data required to calculate it is distributed across multiple matters, invoices, and timekeepers.

Is that a calculation you can reasonably expect a team member to run by hand? Would you trust their accuracy if they did? Would it be worth their time regardless?

It’s questions like these that are motivating more teams to move forward with legal tech investments. Because they know a primarily automated approach to collecting and structuring data is the only valid and sustainable way to develop insights.

Refine Your Reporting

Compelling criteria and smartly sourced data are necessary but not sufficient. Presentation matters. And that means you’ll also need an equally impressive reporting strategy if you want your benchmarks to impact business.

As with the prior step, your targets will be as important as your tactics.

First, confirm the audiences who will ultimately be consuming your insights. In addition to outside counsel, which in-house legal staff members would benefit from access to the benchmarks? Will any colleagues from other departments also be curious?

Next, consider which reporting format is most likely to resonate with each audience segment. Sending only a brief email and an attached scorecard to a law firm might feel dismissive if there are no implied plans for a dedicated meeting. That same plain and concise summary, however, could be exactly what your CFO prefers.

Finally, determine which resources are best suited to efficiently producing the reports you’ve outlined. Where can you lean on software to automatically apply the desired framing? When does it make sense for your team to modify or elaborate on those baseline reports?

There are no one-size-fits-all answers in this domain. The right solution depends as much on your culture as it does on your data. But if there is one business maxim to remember, it’s that undercommunication is the source of significantly more problems than overcommunication.

When to Conduct Law Firm Benchmarking

Drawing a perimeter around your benchmarking program can seem difficult. More insights, across more dimensions, shared with more vendors, could only yield more value. Right?

Possibly in theory, but certainly not in practice. Because as with many facets of corporate legal operations, there’s a serious risk of stretching your resources beyond the point of diminishing returns.

That’s why we recommend a tiered approach to law firm benchmarking.

Tier 1

Your first tier should be reserved for the 10 or fewer law firms that represent your most valuable commercial relationships. This group typically accounts for the overwhelming majority of spend and leads the most strategically pivotable matters. You should plan to share benchmarking insights with each member on a quarterly basis and in a live meeting.

Tier 2

Your second tier should be reserved for law firms with which you have a more occasional and transactional relationship. These are still valued partners, but their smaller spend distributions and engagement frequencies logically exclude them from the top tier. An annual emailed summary of benchmarking insights will often suffice for this group.

Tier 3

Your third tier should be reserved for law firms you expect to engage only infrequently or for less consequential matters. Benchmarking vendors within this group is not especially valuable for either party and should be conducted only on an ad hoc basis if business dynamics evolve.

And just to reiterate, evaluation frequency and presentation format are the only two variables that change depending on the audience. You’re not modifying criteria or lowering standards. You’re just collaborating efficiently.

Additional Resources for Law Firm Benchmarking

Determined to launch your own law firm benchmarking program? See our Legal Ops 101 episode on Vendor Assessment for more helpful hints, recommendations, and frameworks.

To learn more about how Brightflag can help with law firm benchmarking, book a demo today.