A Benchmark Consequence: What if revenue falls faster than total legal spend?

Procurement professionals should understand the interplay between changes in revenue and changes in legal spend. For example, it would not surprise me that for many US companies, revenue plummeted during 2009 at a faster rate than total legal spending. Customers can decide not to buy faster than general counsel can terminate staff or reduce outside counsel spend. It's true -- the leading benchmark metric (total legal spend as a percentage of revenue), might have ticked up or even jumped during 2009.

To illustrate, if a $4 billion company's revenue fell 25 percent, but legal spend fell from $20 million (0.5% of revenue) to $18 million (a 10% fall), then its benchmark metric jumped a dramatic 20 percent (to 0.6%).

Coming out of the recession, revenue may recover healthily while legal spend remains somewhat subdued, because of cost-cutting measures taken last year. General counsel will look great when measured against their department's drop in total legal spend as a percentage of revenue, but the corrective is to calculate that nominal improvement after normalizing it by industry-wide changes. If everyone improves, only a relative improvement against peers should count.

Legal benchmarks are now available, at no cost, from the largest study every done. Join more than 500 other law departments and learn from them. Take part in the benchmark study by clicking here for the confidential, online survey that asks for fundamental 2009 metrics of staff and spending.

Rees Morrison

Discuss this:

Your email address will not be published. Required fields are marked *