How legal teams can use benchmarking to improve decision-making
Well-managed external spend has an enormous impact on any organization. Not only saving costs, but also ensuring the best results for mission-critical legal matters. So, how can in-house teams make high-impact, strategic decisions and ensure external matters are in the right hands? Confidence in using modern benchmarking is the key.
Modern benchmarking is a core legal spend management tool for in-house teams–transforming raw data into a clear roadmap for smarter financial planning and decision-making. This goes far beyond headline rate comparison and helps you build deeper and better partnerships with your law firms.
Imagine having a comprehensive dashboard at your fingertips… One that not only meticulously tracks every pound spent but also offers valuable context by comparing your legal spend to industry benchmarks, your firm's historical performance, and across different business units. This provides insights to negotiate better rates, align on quality, and optimize your use of outside counsel.
Interested? In this blog, we’ll look at how legal teams leverage modern benchmarking to gain control of legal spend, enabling more strategic, efficient, and informed choices.
Let’s jump straight in.
How benchmarking optimizes legal spend
Benchmarking takes the guesswork out of legal spend management allowing you to deeply understand the value your firms are delivering, and how that compares across your panel and with industry benchmarks. Effectively leveraged, it becomes a powerful tool for driving value and cost savings.
The true value of benchmarking lies in the ability to evaluate your legal spend on the measures of value that are important to you:
- ✅See how your rates measure up against peers, competitors, and top performers.
- ✅Move beyond simply controlling costs and understand all aspects of firm performance–from how matters are worked, to cost predictability, to results.
- ✅Identify areas ripe for performance improvements, cost savings, and where you can improve the value you receive from your firms.
- ✅Set and manage custom KPIs to ensure you are delivering the best for the business.
But wait, there’s more. If you leverage legal spend management software, you gain advanced analytics capabilities which allow:
- ✅Full visibility into spending patterns, costs by practice area/matter, law firm rates, and more.
- ✅In-depth benchmarking comparisons to improve your ability to predict costs.
- ✅Surface cost-saving opportunities and efficiency gains that may otherwise go unnoticed.
- ✅Automatically track your firm’s performance and drive better partnerships and greater performance over time.
The result? More predictable and effective management of legal budgets and deeper outside counsel relationships.
4 examples of how legal teams can use benchmarking to improve decision-making
By tapping into robust benchmarking insights, legal leaders gain the knowledge to drive smarter decisions, optimize processes, and elevate overall performance.
Here are four practical ways legal teams can leverage benchmarking for greater effectiveness and efficiency:
#1. Benchmarking spend and rate inflation 📉
Benchmarking spend and rate inflation enables corporates to compare budget performance to both industry standards and historic data. This allows for better negotiation based on data, or preferably the creation of panel or OCG/OCP rules, to cap inflation to an agreed rate.
Here’s how:
Compare industry standards: By examining industry standards, whether through internal benchmarks at the law firm or by considering specific fee earner roles and types of work—for instance, what corporates typically pay for similar legal services—firms can leverage this data to negotiate more effectively and establish fee caps that truly reflect market rates. For example, you might question how partner rate inflation aligns with broader industry trends.
Cross-reference with historic data: Analyzing historical legal spend helps identify trends, and cost-saving opportunities. This data-driven approach informs future decision-making and panel selection. For instance, you can look at a law firm's past associate rates and how they have increased over time.
Access advanced data and analytics: Advanced data analysis tools and platforms can greatly enhance benchmarking processes. These technologies allow firms to sift through large amounts of data, compare their metrics to broader datasets, and identify the most relevant benchmarks. Analytics can also uncover patterns and anomalies in legal spend that manual analysis might miss, providing deeper insights.
With benchmarking in spend and rate inflation, firms can ensure they are competitive internally and with external benchmarks. This ensures they are grounded in reality.
#2. Benchmarking for quality and value 🥇
When selecting and managing outside legal counsel, benchmarking provides insights beyond just financial metrics–it makes it easy to assess qualitative performance through robust evaluation scorecards. These quality benchmarks are indispensable in both corporate and private equity firms where legal outcomes directly impact investment profitability and risk exposure.
Staffing or gearing: Best reviewed during project execution, this metric significantly influences both quality and cost. The balance of partner time versus associate time serves as a key indicator of quality and, naturally, cost. Benchmarking can be effectively carried out at the matter level, law firm level, and against industry norms.
Client satisfaction scoring: This metric captures direct client feedback on key service aspects like responsiveness, alignment with business objectives, and advisory effectiveness across scenarios. Satisfaction scores reveal which firms truly understand your needs and which may be falling short of expectations.
Work efficiency scoring: This metric evaluates law firms by comparing the type of work to the hours worked and the category of fee earner, thus linking directly to costs. When real-time WIP data is available, it’s also useful to review this weekly to identify any outlier matters that show significant increases in partner time or overall fee earner hours. This analysis helps determine if you are obtaining maximum value from your legal spend and guides decisions to enhance ROI.
Affinity scoring: This provides insights into the quality, efficiency, and priority that law firms offer your company. Law firm affinity measures the number of matters a fee earner has handled for a particular law firm. The idea is that the more matters a fee earner undertakes for your business, the better they understand your operations and work methods, resulting in reduced ramp-up time and enhanced impact and efficiency.
Combined, these benchmarked performance scorecards provide a 360-degree view into the quality and therefore value of services rendered by legal firms. They empower legal teams to build a network of top-tier partners.
#3. Benchmarking historical data 🕑
By systematically reviewing past legal matter costs and outcomes over time, legal teams inform financial planning and strategic decisions moving forward.
Law firms delivering work to budget: Benchmarking your law firms on their ability to deliver work within a pre-set budget is a crucial metric. As highlighted in previous blogs, effective budgeting is key to controlling costs. This approach allows you to rank law firms against each other, aiding in selecting those more likely to adhere to budgets without costly overruns. A two-way feedback loop is also beneficial, providing firms with insights into their performance, which can enhance their budgeting and forecasting abilities. Monitoring all work in real-time with an advanced legal spend management solution like Apperio ensures continuous oversight.
Benchmark current matters against prior norms: Comparing current legal engagements and proposed fees against historical benchmarks ensures spend stays aligned with internal expectations and market norms. For firms focused on precise budgeting for maximum investment returns, these benchmarked comparisons provide crucial guardrails.
This insight is also powerful for negotiations. With factual benchmarks to hand, you can substantiate challenges to proposed rates and fees from outside counsel to ensure optimal pricing.
#4. Benchmarking across business units 🔀
For any firm, it's important to effectively manage how outside legal counsel is used to control costs and maintain consistent operations. By benchmarking and comparing legal activities across the different business units, legal teams get a comprehensive view of the varying practices, spending amounts, and efficiencies in delivering outcomes. Looking at this cross-unit data highlights areas for potential optimization across the entire organization.
Find the best approaches to use across the company: When looking at how different units work with external legal counsel, you'll start to see some clear differences: Which units get the best pricing and terms from law firms? Where are clients most satisfied with the legal work and value? What processes and staffing models make a unit most efficient? Legal teams can identify the best practices and procedures by analyzing the metrics behind these successes. Then they can implement those proven approaches consistently across all business units.
Allocate resources based on each department's needs: Different business units won't have the exact same legal needs. Comparing spending and law firm usage shows where to focus resources. For example, units dealing with more complex issues may require specialized, high-end legal support–whereas other lower-risk areas could use standardized, cost-effective legal services.
Allocating resources this way ensures every unit gets appropriate legal backing without overspending in some areas.
Use case: 🔍Benchmarking meets strategic budgeting frameworks
We touched on budgeting a little higher up ⤴️–and in this blog–but given the importance of this topic, we wanted to cover why benchmarking is so valuable to budgeting frameworks:
1. Project-level budgeting: When budgeting at the project level, benchmarking helps ensure the overall budget is competitive and efficient. For example, if benchmarking shows tax advice can be obtained at a lower cost in one location or at another firm, data-based decisions can be made to gain the best value.
2. Matter-level budgeting: For individual legal matters, benchmarking similar cases provides insights into potential cost savings and helps set realistic budgets. This ensures each matter is appropriately funded, preventing overspend.
3. Task-level budgeting: Here, benchmarking specific activities like discovery or witness preparation against industry averages allows for precise control over spending. This indicates where costs might be trimmed or where additional resources are warranted.
Ultimately, integrating benchmarking into these different budgeting frameworks empowers firms to develop competitive, efficient, and realistic legal expense budgets tailored to their unique needs and priorities.
We’ve covered quite a bit of ground in this blog so let’s summarize the key takeaways.
Embracing benchmarking: Key to enhanced decision-making and optimized legal spend
Benchmarking in legal spend management offers a multitude of benefits that can significantly enhance decision-making and financial efficiency. Ultimately, by providing a robust framework for comparing internal processes against industry standards and historical performances, benchmarking empowers teams to make informed, data-driven decisions.
Key benefits of benchmarking:
✅Enhanced decision-making: By understanding how legal spend compares to industry benchmarks and past data, legal teams can make more strategic choices regarding budget allocations, outside counsel panel selection, and negotiation tactics.
✅Improved financial efficiency: Benchmarking identifies areas where costs can be reduced without compromising on quality, as well as areas where additional investment may lead to better outcomes, optimizing overall legal spending.
✅Quality assurance: Regularly evaluating the performance of outside counsel through metrics like satisfaction, value, and invoice scoring ensures that only the most effective and efficient services are utilized.
✅Optimized resource allocation: Benchmarking across different business units allows organizations to align their legal resources more closely with actual needs, enhancing the overall effectiveness of legal services.
Final takeaway: By harnessing the power of data-driven insights, legal teams can manage costs effectively and enhance the quality of their services, ensuring every decision is data-backed.
Ready to take the next step? If you’re looking to benefit from benchmarking, look no further. At Apperio, we enable firms to gain cost control with benchmarking insights–all delivered in a simplified reporting dashboard.
Apperio’s benchmarking approach:
- Quarterly spend overview: This includes both billed amounts and work in progress (WIP), write-downs, and detailed breakdowns by business unit (BU).
- Top matters analysis: Identification of key matters managed by each law firm (LF).
- Hourly rate trends: Analysis of inflation in hourly rates by law firm, role, and stream or business unit, including staffing and gearing metrics.
- Cost overview: Average costs per matter are evaluated by region, type of work, and number of fee earners involved.
- Fee earner analysis: Insights into law firm affinity and staffing patterns.
- Billing behavior: Trends in block billing over time are closely monitored.
This structured approach provides comprehensive insights into legal spending, ensuring effective cost management and strategic alignment with business goals.
Book a demo here to learn more.
Keen to learn more legal spend management best practices? Take a look at these blogs:
Author:
Chris Perry
VP Sales