5 ways to get the most value out of law firm metrics

The most effective vendor management happens when legal ops teams treat their outside counsel like pro athletes.

Stay with us — both (expensive) parties are hired to fulfill a certain need, whether that’s to handle complex litigation or to lead a more aggressive offense. In the sports world, coaches and GMs determine how well their player is meeting that goal by tracking concrete stats. For example, Buffalo Bills quarterback Josh Allen is evaluated annually on passes attempted vs. completed, touchdowns, and yards gained by passing. These data points objectively show whether he’s meeting expectations, and the franchise can also use these numbers to rank his performance against other QBs in the league.

This is exactly why the most strategic legal ops teams use law firm metrics: to accurately assess law firm performance and ensure they’re getting the most out of their legal budget. Without hard data, you can only rely on educated guesswork to determine how well your vendors are meeting your needs and if their pricing is fair — and those assumptions can easily cost you thousands of dollars.

It’s time to transform your legal spend and law firm management with these 5 uses for law firm metrics:

1. Create a vendor scorecard

Standardize your vendor reviews by using law firm metrics to create a vendor scorecard. A consistent rubric ensures fair evaluation of outside counsel and determines clear performance benchmarks.

Without a set process to review vendor performance, it’s tough to accurately compare your different law firms against each other. Despite this, many legal ops teams still operate this way, with 45% of respondents in CLOC’s 2021 State of the Industry report defining their vendor review process as “ad hoc.” By shifting to a formal, documented approach, you’ll be able to improve the quality of your vendor assessments and make more strategic, cost-effective decisions.

While legal ops scorecards will vary based on department and company goals, including law firm metrics from each of these four categories will give you a well-rounded view of vendor performance across the board:

1. Spend data: Spend by firm, spend by matter, spend to budget, spend by practice area
2. Billing data: Accruals vs. actuals, billable hours, time to process invoices, invoice approval rates, and billing guidelines violations
3. Vendor data: Average timekeeper rates, rate discounts, and alternative fee arrangements (AFAs)
4. Matter data: Number of matters handled by each firm, average matter lifecycle time, and matter resolution rates

Additionally, more legal ops teams are using outside counsel diversity data as a performance metric. This ensures they’re working with vendors that share the same commitment to advancing legal diversity, equity, and inclusion. To track this metric, ask vendors to submit staff diversity info through the American Bar Association’s Model Diversity Survey or the Minority Corporate Counsel Association’s Diversity Scorecard.

Once you’ve tracked your performance data, rate your overall relationship with each vendor on a scale of 1–10. While this is more of a subjective metric than hard data like billable hours, it’s still important. Outside counsel should be helpful partners to your team, not stressors who consistently add tension.

2. Support pricing negotiations

One of the biggest advantages of using law firm metrics is that they act as evidence when you’re determining fair prices for legal services. While it’s never ideal to discover that you’re being overcharged, the good news is that you can use that knowledge as leverage in law firm rate review discussions with outside counsel.

When you’re benchmarking law firm rates, you’ll review legal spend analytics from the vendors you work with, as well as market data from the legal industry. This way, you’ll get the full pricing picture, which gives you more support to craft an airtight argument than you’d have if you were just looking at your own spend data.

Outside of average legal costs, you’ll be able to review aspects like volume discounts and the use of alternative fee arrangements (AFAs) — both of which can reduce your legal spend even if your vendors are reluctant to budge on their hourly rates. Ernst & Young found that GCs are looking to reduce legal costs by around 14–18% by 2024, so finding ways to save other than reduced rates helps with long-term legal cost control.

3. Determine where you need in-house counsel vs. outside counsel

It may seem counterintuitive, but outside counsel management plays an important role in your internal staffing decisions. You may have a gut feeling about whether it makes more sense to insource (buy) or outsource (rent), but educated guesses are still just guesses. Law firm metrics turn those hunches into data-driven decisions, helping you optimize your legal staffing for the long run.

Let’s say you review your matter data and see that your company has seen a steady increase in intellectual property (IP) matters. Instead of just keeping the work with its current owner, you can look at law firm metrics and legal analytics on your in-house counsel to objectively determine:

• Who has the expertise on hand to handle this work (partners, senior counsel)
• Your average spend on IP matters internally vs. externally
• Historical total cost of IP matters internally vs. externally

Armed with these insights, you can make a confident, informed decision on where to assign your future IP matters in a way that fits your budget and protects your attorneys’ time and talent. For instance, if you find the cost of retaining outside vendors is greater than an in-house attorney’s salary, you now have data-driven support for bringing on a new hire. This relieves strain on current team members while optimizing your return on investment.

Check out the SimpleLegal blog to learn when to give work to in-house counsel or outside counsel.

4. Set concrete legal ops goals to objectively prove your team’s value

Law firm metrics reveal opportunities to improve your vendor and spend management. With these numbers, you can come up with specific key performance indicators (KPIs) that reflect realistic outcomes to show legal ops’ value and efficiency.

Some legal ops goals based on insights from your law firm metrics include:

• To switch X number of vendors to alternative fee agreements (AFAs) over the next year
• To complete X number of contracts annually
• To reduce time to pay invoices by X percent
• To reduce gaps in estimates compared to actuals by X percent

Once you define your goals, you can consistently return to the data to gauge whether you’re on track to meet them — which is much more effective than saying you just “feel” like you’re progressing. Your goals also inform the metrics you concentrate on the most. For instance, if you want to reduce gaps in estimates compared to actuals by 15%, it makes more sense to compare spend to budget and your estimates to actuals instead of matter lifecycle times.

Besides strengthening your own performance, data-backed KPIs also strengthen the working relationship between legal ops and finance. Let’s say you determine that you need to increase outside counsel spending by 20% to handle your company’s planned business acquisitions. Instead of just asking for a bigger budget out of the blue and frustrating finance, you can go to them with a clear plan: “We need to increase outside counsel spending by 20%, with the goal of establishing AFAs with 50% of the new vendors. This will help us avoid inaccurate accruals and double billing that, historically, have cost us between $5,000 to $8,000 annually.”

It’s much easier to make your case for additional budget approvals when you have data to prove you’re proposing a smart financial move. Additionally, coming to the table with legal analytics helps dispel the widespread view that legal isn’t a “modern operation,” as noted in Onit’s Enterprise Legal Reputation Report. These types of numbers show finance you’re on the same page, and you can collaborate more effectively to support the bottom line.

5. Drive conversations to improve relationships with your vendors

Law firm metrics facilitate clearer discussions with outside counsel about their performance. It’s unrealistic to expect a vendor to change their work approach or processes if you don’t have evidence to back up why it’s a fair ask.

Let’s say you work with a law firm that has a high rate of successfully resolving matters but has a higher-than-average matter lifecycle time. Just telling them they need to speed up their turnaround time isn’t helpful. But if you share visual data graphs on their average lifecycle in comparison to other similar firms, you’ll have an objective opportunity to improve inefficiencies, and you can work together to come up with a proactive solution. With data on your side, you can establish reasonable expectations that work for both parties, helping to resolve tension and disputes down the line.

On the flip side, if you share data with your vendors and their performance remains objectively sub-par, the law firm metrics will serve as hard evidence that supports a decision to end the relationship and work with a vendor that’ll give you a stronger ROI.

Track law firm metrics using a vendor management solution

Data-driven vendor evaluations are a win-win-win for you, your vendors, and your company’s bottom line. While you can keep track of key metrics manually across spreadsheets, that drains a lot of your time and leaves room for human error in your data.

Skip the hassle with an integrated vendor management solution that updates vendor data in real time, in one place. Learn how comprehensive legal tech like SimpleLegal helps you unlock greater cost savings.

This article has been updated to reflect new information and industry trends from the original article, published on March 4, 2020.