6 Strategies to Reduce Legal Spend

Increasingly, in-house teams get tasked with reducing legal spend. But it’s usually unrealistic to reduce legal spend in absolute terms when your business keeps growing. Instead, focus on cost control — keeping costs in check or reducing the relative cost of legal service delivery — as your business grows.

It’s up to legal to educate finance and business leadership about what is realistic and how your legal budget supports their goals. Your legal department can control costs and reduce legal spending in several ways, proving to your organization you take your financial responsibilities seriously.

Here are six opportunities for reducing legal spend, including their benefits and what to keep in mind when implementing them.

1. Create a System of Record

“Frankensteined systems that don’t talk to each other make it hard to understand spend,” said Chad Meyers, VP and Head of Outside Counsel Management at SMBC.

A single system of record to manage your legal spend helps you quickly, easily, and more accurately know what you are spending and with whom. Knowing what you’re spending is the first step towards reducing legal costs.

Streamline all the information about your legal spend into one e-billing and matter management system. Doing so means you can easily access all the details about your matters and spend, from intake to invoice — no spreadsheets required.

Key Benefits and Potential Cost Savings

A system of record gives you a holistic view of your total spend so you can dig into what’s driving expenses. The system provides real-time reporting on legal spend, enabling legal ops and legal leadership to understand and mitigate spending trends. For example, if you notice a rapid increase in spend for employment work, it may be time to hire an employment lawyer in-house to reduce the cost of delivering these legal services.

A system of record also helps with strategic planning and data-driven decision-making. Access to real-time spend data means legal leadership can better track spend against budget and ensure spend does not exceed budget each financial period.

When you have consistent metrics from a single source of truth, you can report to your stakeholders the value of the legal department, including trends in the types of legal matters you manage. These reports and dashboards can also help you build a case for additional internal headcount and resources to help you reduce external spend.

Implementation Challenges and How to Overcome Them

Without an e-billing solution, your legal team will have a harder time getting the spend insights they need to develop a reliable budget and understand trends or risks. However, you can leverage this fact to create a line item in the budget to purchase an e-billing tool in the upcoming year.

When implementing a new e-billing system, change management can be daunting for staff and vendors who are used to current processes. Like any major initiative, focus on the benefits, including time saved. Provide training so those affected can see how a single system can simplify their work.

How This Works in Practice

Chris Young, General Counsel at Ironclad, understood he needed to optimize his team’s financial analytics to build trust with the business. “We want to maintain, if not exceed, the same standards as any other department when it comes to generating and sharing valuable data insights,” Young explained. “Because ultimately that’s the way to move beyond the stubborn perceptions around in-house legal and build a reputation as a genuine business enabler.”

2. Enforce Your Outside Counsel Guidelines

Your outside counsel guidelines define what provides value for your organization and what you won’t pay for. Applying your outside counsel guidelines to every invoice keeps you from paying for work that you do not consider valuable to your organization.

Use your e-billing system to ensure your guidelines are applied consistently and completely to each invoice, flagging potential violations.

Key Benefits and Potential Cost Savings

AI-enabled legal e-billing software can automatically flag and even reject invoice line items that violate specific guidelines, helping to reduce costs by ensuring you don’t pay for work that the firm’s overhead should already cover.

Implementation Challenges and How to Overcome Them

It’s difficult for every attorney to be well-versed enough in your guidelines to do a complete and consistent review. A manual review process is time-consuming and violations could slip through. An automatic review process through your e-billing software saves time by flagging any issues for review and makes sure you aren’t paying for line items not aligned with your guidelines.

How This Works in Practice

Before the Ocado Group implemented e-billing software with automatic review, the legal department’s invoice review process was manual and time-consuming. They knew it was error-prone, costing more than it should in legal spend and staff time. Within the first year of implementing their e-billing software, they could consistently apply billing guidelines, confirm negotiated discounts, and flag violations. Ocado saved 5% against a target of 3.3%.

3. Develop a Budget Culture

When your legal team creates and tracks against budgets for their departments and individual matters, they are more likely to recognize when they need to reduce spend. It’s not just an end-of-year conversation, but an ongoing process of proactive management.

Create a budget for each practice area of your legal team, such as IP or corporate, and have owners for each sub-budget. Require a budget for matters that engage outside counsel. Ensure everyone knows and understands their respective budgets and the budget to actuals as matters progress.

Key Benefits and Potential Cost Savings

A budget brings predictability to managing the legal needs of the business. The budget enables your legal team to track and measure where spend is higher than expected and proactively manage these trends.

Your team members and outside counsel will become more accurate with their budget estimates over time as they get used to costing matters upfront.

Implementation Challenges and How to Overcome Them

Budgeting individual matters can be overwhelming if your department doesn’t have a budgeting culture. It’s not always easy to know where to start. Working with your finance team can create a structure to make the task more digestible.

In a webinar, Mark Allen, Director of Legal Operations and Strategy at Zillow, suggested you work with finance to understand the threshold they care about. For example, they may care the most about predicting spend on matters over $50k. So, if you think your matter will be more than $50k, you need to have a budget or forecast for it.

Because you will be creating legal budgets for each of those higher dollar matters, there is a good chance you will manage as much as 80% of your budget with just 20% of your matters.

How This Works in Practice

Creating a budget culture should extend to your outside counsel as well. Tim Casey, the General Counsel and Chief Compliance Officer for mobility and lifestyle enhancement products company Numotion, has a rule regarding budgeting with outside counsel: No surprises.

In addition to building strong relationships with a few firms, he includes them in his budgeting process. “I use my outside counsel to help me budget that spend for the year. It’s my data and it’s their data,” he said “If we start getting outside of that, I want to know.”

4. Benchmark Your Vendors

Using your e-billing software’s reporting features, you can build an objective perspective of how your outside counsel is performing and assess value more holistically with data. Your data, coupled with industry norms and benchmarks, can help you maximize value from outside counsel and potentially consolidate the number of firms you work with.

Prompt your internal matter leads to complete a standardized survey when closing a matter. Ask your leads to report on the quality of work, budget management, communication, and whether the lead would recommend using them again. You can combine this qualitative data with quantitative data on their blended rate, cost per matter, billing hygiene, and outside counsel guideline compliance to compare your vendors.

Key Benefits and Potential Cost Savings

Benchmarking your vendors across several attributes will help you understand which vendors are performing the best — and not just on cost or highest discounts, but on other important metrics like timeliness of response and billing hygiene.

You can send more work for those top vendors and negotiate better discounts. You can also share this information with your vendors, highlighting where they aren’t performing as well as other firms so you can talk about how they can improve.

Implementation Challenges and How to Overcome Them

The survey is another step in closing a matter, so make sure it is straightforward enough that your internal matter leads will use it consistently. Some e-billing tools, like Brightflag, have a built-in survey to make this as easy as possible.

For long-term matters, do quarterly check-ins to avoid recency bias. Share the benchmark reports with your in-house team regularly so they can incorporate the data as they select which outside counsel to use. Also, share relevant information with your outside counsel, who are typically hungry for this type of information.

How This Works In Practice

On a webinar, Bill Novomisle, SVP of Legal Operations at Cresco Labs, shared that he benchmarked his essential, non-value-adding tasks his outside counsel will bill for, such as internal communications.

He found that his best-performing firms handling larger matters would spend between 10-12.5% of their overall budget on these essential non-value-add tasks. That became his benchmark, and he would point it out to firms over 12.5%. Typically, within two quarters, he would find that firms above the benchmarks were within the preferred range on those non-value-add tasks.

5. Hire In-House vs. Outside Counsel (Where Feasible)

Outside counsel is the most expensive way to manage a matter, so it’s important to consider whether other options, such as internal counsel or ALSPs, could be better for specific types of work.

Trusted outside counsel is often the best bet for high-risk, low-volume matters. But there are often more cost-effective options for other types of work, such as hiring in-house counsel when you have a steady stream of a particular type of work. Alternatively, consider flex resources and alternative legal service providers (ALSPs) for spikes of medium-to-low-risk, high-volume work.

Key Benefits and Potential Cost Savings

Not all work is well-suited for in-house teams or ALSPs, such as one-off matters requiring deep specialization in a particular area. But far more work can be sent to lower-cost resources than an in-house team typically sends. Track the risk and complexity of matters to see which ones top firms unnecessarily send.

Implementation Challenges and How to Overcome Them

Before insourcing a matter, you must ensure you aren’t overburdening your team. Have your team track their time over a month or a quarter — that will help you discover where there might be room to add or where there might be opportunities to delegate to another team member so an attorney can take on additional work.

How This Works In Practice

Cresco Labs’ legal department uses its e-billing software to track why it engages a firm, such as on general advisory for a subject area. This tracking helps the department understand when it needs to increase headcount.

Suppose Bill, the SVP of Legal Operations, spends $200k annually for general labor advice, for example. In that case, he can hire someone in-house and eliminate or radically reduce that outside counsel spend. This assumes the advice concerns a repeatable need, and a large matter that won’t repeat doesn’t skew the data.

6. Workflow Automation

Automating your workflows streamlines your processes, making them faster, more efficient, and more accurate. Identify the repetitive tasks that can slow down your processes, such as manual matter intake and invoice review. Use your e-billing and matter management software to automate these tasks, saving time and improving the consistency of the information.

Key Benefits and Potential Cost Savings

Saving time is as important as cost reduction. For example, you can set up automatic NDA reviews and train other staff to manage that workflow. This legal workflow automation can save legal departments hundreds of hours.

Implementation Challenges and How to Overcome Them:

Streamlined processes that save time are typically an easy sell to your legal team. Provide clear training on how the automated workflows work and how to spot-check to make sure they are functioning properly.

How This Works in Practice

Before SMBC implemented a legal spend management solution, its matter-opening workflow involved too many moving parts and too many handoffs. Information was scattered among shared drives, creating a game of email ping-pong to get missing details. It took up to several days to open a matter. By implementing a system with matter templates that helped automate intake, the SMBC legal department saved 300 hours on matter openings alone in the first nine months.

Boost Your Efficiency with AI-Powered Invoice Review and Spend Analytics

Your legal technology continues to improve and provide new functionality to help you reduce legal spend. AI-enabled tools supercharge your legal tech, saving time and accelerating your spend reduction efforts across your legal department.

With invoice review powered by AI, you turn an arduous and manual process into one that consistently applies your outside counsel guidelines and saves time for your attorneys. Legal spend analytics tools help you better balance internal and external resources.

Brightflag has provided clients with AI-powered tools that deliver results for over a decade. If you are ready to save time and reduce legal spend, book a demo today to see Brightflag’s e-billing software in action.