ROI of Legal Spend Management: 25+ Ways It Pays to Invest
Like any responsible investor, you’re careful to research the expected returns before committing your resources. Like any responsible advisor, we’re able to explain your potential gains in a clear and complete prospectus.
And when considering the ROI of legal spend management, we think it’s best to assess value from three separate but complementary angles:
The Financial ROI of Legal Spend Management
This is where the conversation naturally starts for most in-house legal teams, but the monetary impact tends to be more varied than they initially imagine.
Rejecting unauthorized expenses
Enforcing legal billing guidelines more effectively delivers direct cost savings in the form of invoice write-downs. The sum of these incremental improvements is often equivalent to 5% or more of annual legal spend.
Eliminating unauthorized expenses
The least expensive error is the one that’s never made. So as vendors adapt and improve their invoicing habits, preemptively avoided billing violations become an invisible — but no less impactful — source of cost savings.
Setting budgets more consistently
Establishing clear expectations and objective metrics from the start naturally increases accountability and improves performance. So any system that facilitates simpler budget setting is likely to have a positive impact on your bottom line.
Setting more granular budgets
Building more detail into your budgets creates a finer sense of control. That’s why teams appreciate tools that move beyond annual budgeting alone and account for expenses by business department, matter phase, associated vendor, and more.
Automating budget enforcement
Reflexively rejecting expenses above a set threshold nullifies the potential for uncontrolled overruns. If a Brightflag customer were to set a $300,000 budget for the discovery phase of a litigation matter, for example, their invoice approval workflow could be configured to reject any associated charges submitted after that limit is reached.
Automating rate enforcement
Even if the subtotal is on track to come in under budget, that’s still no reason to inadvertently overpay when a vendor mistakenly bills a line item at an unapproved hourly rate.
Negotiating more favorable rates
Knowledge is power, and one of the most formidable long-term advantages of expert legal spend management is an increasingly clear perspective of what certain legal services should cost. Detailed data provides insight into the fairest price and valuable leverage in the negotiation process.
Prescribing resource levels
True legal spend management looks beyond what rates timekeepers are billing to explore what activities they are performing as well. After all, negotiating a partner’s hourly rate down by 15% is of little value if their law firm goes on to quietly shift junior-level work in their direction to make up the difference. Timekeeper breakdown reports guard against that scenario and, more importantly, put clients in position to set the expectation for how tasks should be matched with talent.
Negotiating more fixed-fee arrangements
In addition to efficiency, in-house legal teams also treasure predictability. The same data-driven perspective that enables more proactive rate negotiation and resource assignment can also facilitate discussions that lead to more frequent adoption of alternative fee arrangements.
Applying early-pay discounts
Reducing your average invoice approval time puts you in position to negotiate discounts with vendors in exchange for the guarantee of faster reimbursement.
Consolidating vendor relationships
Sophisticated legal spend reporting will help you quickly identify which vendors are delivering the most valuable services and adjust your resourcing plans accordingly. This creates at least two cost-saving opportunities.
First, you may decide to allocate more work to fewer vendors and negotiate volume-based discounts with each. Second, you might eliminate entire spend categories by insourcing projects and/or disintermediating processes (ex. Parting ways with an ALSP).
Making timely adjustments
Corporate legal services will always contain a certain degree of unpredictability. What is within your control, however, is how you respond when plans go awry. The emergence of real-time budget tracking and predictive forecasting tools now gives teams the best possible chance to correct course before unacceptable overruns are incurred.
The Operational ROI of Legal Spend Management
Smarter legal spend management not only impacts the expense of work but also the flow of supporting operations that surround it.
Accelerating invoice collection
Legal operations administrators have historically spent an inordinate amount of time tracking down legal invoices delivered to individual email inboxes. The simple act of submitting all invoices through one centralized billing platform can save hours each month for vendors, in-house lawyers, and ops pros alike.
Reducing invoice review time
Verifying rate, budget, and billing guideline compliance across thousands of individual line items each month is a tall task. The process goes exponentially faster, however, when you graduate from basic e-billing tools (or pen and paper!) to A.I.-powered legal invoice review.
Increasing invoice review accuracy
Gaining speed only to lose accuracy is not a valuable outcome for in-house legal teams. The good news is A.I.-powered invoice review combines the best of technical innovation and human insight to deliver the most scalable, accurate oversight possible.
Accelerating invoice approval
Invoices deemed error-free by the legal department still have a few steps to travel before the associated funds appear in a vendor’s bank account. From automated routes to email reminders to direct integrations with accounts payable systems, there are several subtle ways legal spend management software can reduce your average turnaround time.
Ensuring financial compliance
Accurate and acceptable subtotals aren’t the only financial compliance criteria. Most corporate legal departments also have to address spend allocation, tax calculation, purchase order (PO) assignment, and similar company-wide considerations. Attempting to satisfy these complex requirements without specialized software is often what ends up adding days and weeks to approval timelines, with invoices initially “approved by legal” frequently getting rejected for correction.
Simplifying accruals management
Confirming what’s already been spent is only half of an in-house legal team’s financial obligations. Executive mandates, and often public reporting requirements, demand accurate estimates of what will be spent as well. Managing legal accruals with the help of specialized software significantly reduces the time and stress typically associated with more manual alternatives.
Accelerating spend reporting
Capturing, analyzing, and communicating legal spend insights is an onerous task for legal operations staff armed only with forwarded emails and faulty spreadsheets. Legal spend management software with sophisticated analytics features can dramatically reduce time spent building reports while increasing the impact of what’s ultimately presented.
Expanding spend reporting
Financial analysis can and should be more than a chore. Given the deeper data and sharper insights now offered by AI-powered solutions, more teams are starting to see legal spend reporting as both a creative exercise and strategic opportunity.
Maximizing team talent
All the points previously listed in this section contribute to a culture where administrators, lawyers, and leaders are spending less time addressing trivial tasks and more time applying their most valuable talents. And as we’ll discuss in the next section, the impact of this new dynamic extends well beyond the four walls of the legal department.
The Relational ROI of Legal Spend Management
People, process, and technology. The reason we list those words in that order when grouped together is because people will always be the heart of the legal profession. This means no evaluation of legal spend management would be complete without consideration for how human relationships are transformed as a result.
Eliminating vendor obstacles
Where do I send the invoice? Why was it rejected? When will I be reimbursed?
Does this really have to be so difficult?
Every minute your vendors spend thinking about those logistical questions is time that could have been spent focused on delivering valuable services. So it’s no exaggeration to say that ignoring allegedly “soft benefits” like a better user experience can actually create hard costs over time.
Increasing vendor accountability
Pairing clear, proactive expectations with detailed, corresponding measurements is always a reliable formula for encouraging responsible behavior. Smarter legal spend management strengthens each factor.
Deeper reporting on both quantitative (ex. blended hourly rate) and qualitative (ex. quality of communication) traits can help you build an objective, holistic view of vendor performance and use that feedback to set increasingly precise expectations.
Clarifying vendor evaluation
It’s important to acknowledge that innovations like A.I.-powered invoice review and advanced performance analytics are not designed to be punitive instruments. Transparency and objectivity are the true goals — and ones valued equally by both sides.
Vendors appreciate clients who share candid and practical feedback. If benchmarking data reveals that a law firm is outpacing its peers on diversity and inclusion, for example, then that would certainly be gratifying news to receive. Conversely, it would be a commercial priority to learn about a client’s dissatisfaction with partner-level billing trends as soon as possible.
Instilling transparency and objectivity in vendor relationships is also in the client’s best interest, as it actively counters bias and promotes equity in their own evaluation and selection decisions.
Providing financial clarity
Corporate legal departments have always faced an uphill battle when summarizing their spend for financial stakeholders across the organization. Subject matter complexities, vendor dependencies, and unpredictable requirements are just a few of the inescapable obstacles contributing to this reality. But inescapable doesn’t mean insurmountable.
The most radical advantage of A.I.-powered legal spend management is the ability to rapidly translate nuanced legal narratives into approachable business insights. This gives rise to a brand of real-time reporting that empowers in-house legal teams to quickly and confidently answer the questions CFOs care about the most.
Increasing financial predictability
If clarity on what has been spent is appreciated, then control over what will be spent is adored. And it’s this ability to proactively shape outcomes that’s ultimately at the heart of legal spend management.
Documenting billing guidelines. Setting granular budgets. Negotiating fixed-fee arrangements. Prescribing resource levels. Automating enforcement. Maintaining accurate accruals. Reporting spend-vs.-forecast.
All these habits incrementally remove variables, limit surprises, and clarify what’s coming around the corner while there’s still time to respond. And, given the inherently unpredictable nature of legal services, that’s all the courtesy corporate financial planners would request.
Improving business integration
An island. An obstacle. A department of “no.” Sadly, many organizations still hold onto damaging misconceptions about their in-house legal teams. The good news is legal spend management is a perfect vehicle for this long-overdue cultural transformation.
It’s naturally collaborative, as it pairs legal and business leaders together in financial forecasting exercises. It’s easily relatable, as cost control is a skill that’s recognized and respected across departments. And, when expertly executed, it’s demonstrably valuable to the business.
Guiding business strategy
When costs are confidently under control and operations are consistently speeding ahead, in-house legal leaders suddenly have more time to work alongside business colleagues and more impact to deliver in the form of practical insights.
And seeing as this ability to offer strategic consultation on a broad range of business decisions is what initially attracts many lawyers to their “in-house” roles, consistently making it a larger portion of your workweek may be the most meaningful ROI of all.
More Than Just a Cost Center: It’s Time for Legal Leadership to Change The Perception of In-House Legal
More Than Just a Cost Center: It’s Time for Legal Leadership to Change The Perception of In-House Legal