Definition
Total Legal Spend as a Percentage of Revenue (TLSPR) is a classic metric, by which organizations can track the financial impact and efficiency of their legal department. Understanding the proportion of revenue allocated to legal spend helps organizations make informed decisions and prioritize their legal initiatives. It assists in evaluating the return on investment (ROI) for legal activities and in determining resource allocation to address critical legal matters that align with the organization's strategic objectives.
If TLSPR is higher than the goal set by management, it may indicate that legal expenses are consuming a greater portion of the organization's revenue that expected, suggesting the need for cost optimization strategies, such as negotiating better fee arrangements, streamlining legal processes, or implementing alternative dispute resolution mechanisms. A lower percentage could indicate effective risk management and cost control, potentially enhancing stakeholder confidence and overall organizational reputation.
Data Sources
To calculate the total legal department spend, you may include the following:
External Spend: All fees/expenses related to external services, products, and support, including but not limited to fees paid to or incurred by outside counsel, consultants, vendors, expert witnesses, mediators, arbitrators, courts, alternative legal service providers (ALSPs), e-discovery, and all other third parties.
Internal Legal Spend: All labor-related expenses for in-house legal staff, comprised of wages, salaries, bonuses, commissions, benefits, and any other costs associated with employing internal legal team members. In addition, other expenses can be included such as software licenses, subscriptions, maintenance for legal-specific applications, and training for legal department staff.
Trend Analysis
Trend analysis reveals how strategic decisions in the legal department influence the TLSPR. Key business activities like expansions, restructuring, and the adoption of legal tech can significantly impact these trends, often showing initial cost increases followed by efficiency-driven decreases.
For a deeper dive into this metric and other KPIs, be sure to check out my book, Legal Operations KPIs on Amazon in English / Spanish or eBook on Google Play English / Spanish. It offers comprehensive insights and detailed explanations of over 80 metrics and KPIs to help you optimize your legal department's performance.
Visit LegalOpsKPIs.com for more information, exclusive resources such as expert interviews, a chart library, Excel templates, and to connect with a global community of professionals committed to advancing Legal Operations through data-driven insights.
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InfiniGlobe is a full-service consulting and software company. We have 20+ years of industry experience working with top corporate legal departments and law firms. Contact us at info@infiniglobe.com or at (833) LGL-TECH.
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