Product Spotlight: Using Dashboards to Benchmark Legal Spend

Benchmarking outside counsel hourly rates from one law firm to another provides beneficial insights for general and legal operations professionals who want to better drive legal spend strategy. The LexisNexis® CounselLink® 2024 Trends Report: Dynamics Shaping the Future of Legal indicated that law firm partner rates marked a steady climb in the last four years. The report provides a way for law departments to benchmark legal spend. 

The 2024 Mid-year Special Edition Trends Report indicated that law firm partner hourly rates are not rising as exponentially as in 2023. This data is culled from the CounselLink Benchmark Database that provides critical insight into invoices paid by legal departments to law firms. Note in the figure below that 2023 boasted the highest increase in outside counsel rates, while benchmark data from January to July 2024 showed the partner increase at 4.8%, a difference of .8%.

Average Outside Counsel Partner Rates, Mid-year 2024

Using Dashboards to Benchmark Legal Spend 

To gain better insight into legal spend, many CounselLink customers compare the hourly rates they pay to their law firm to rates paid by their peers for similar work. In the enterprise legal management platform, the “Hourly Rates” Analytics Dashboard provides this information. To obtain best-practice insights, legal operations professionals and general counsel can use the legal spend dashboard and follow these guidelines.  

Narrowing to Meaningful Benchmarks for Your Organization 

Importantly, the rates that appear when a user first opens the dashboard are the combination of rates paid across multiple types of work (practices), sizes of law firms, geographies, etc. It is not meaningful to compare an organization’s rates to the benchmark at this high level.  

For example, the benchmark data includes relatively low rates paid by some customers for Personal Injury litigation and relatively high rates paid by some customers for Mergers & Acquisitions (M&A) work. Insurance carriers engage many small firms (a relatively low rate) while larger corporations typically engage Large Law firms (a high rate) for representation. Therefore, it is critical to narrow the data to meaningful comparisons similar to how one might narrow real estate data to search for meaningful home price comparisons. The Controls section (1) at the top is where a user applies the desired filters to accomplish this. 

Within the enterprise legal management solution, always narrow selections with these most critical controls:

• Matter Category. Matter categories are akin to practice areas. In the matter management feature of the CounselLink enterprise legal management solution, matters are assigned a matter category based on keywords contained in Matter Types and/or keywords in their Customer Office. You should not compare the rates paid for Employment work to the rates you pay for M&A transactions. There is a very high correlation between the Matter Category and hourly rates paid.
• Firm Size. Firm size also is highly correlated to hourly rates paid. The CounselLink 2024 Trends Report noted a 61% differential between partner rates paid to firms in the largest tier of firms to the next tier of firms. Firm size is based on the number of lawyers in the firm with the largest category at 750+ lawyers. There are roughly 100 law firms in this category. Note: if you aren’t sure what size firms you work with, refer to the Timekeeper Data tab to see details about firms and timekeepers who have billed your organization.

• Charge Year. The dashboard contains up to three years of data. Given the rapid rate of growth of hourly rates in the past several years, it is highly recommended to narrow the year to the current year plus potentially one year prior if it is early in the year.

Other non-essential filters to consider:

• Matter Sub-Category. Some matter categories have sub-categories that help narrow the data to more specific types of work. For example, the Litigation matter category has multiple sub-categories, such as Employment Litigation and Personal Injury. Note that not all matter categories have sub-categories (i.e. Environmental). It is important to keep in mind that not all CounselLink customers categorize their legal work to this granular level. For example, if you narrow the data in the Litigation sub-category of “Class Action,” the benchmark data returns rates for customers who have classified Litigation as Class Action but excludes rates for matters that may be Class Action, but the customer classifies at the higher level of “Litigation.” It may be helpful to look at the data at both the Matter Category AND Matter Sub-Category levels.
• Matter Total Spend. This filter considers the total spend over the lifetime of the matters being benchmarked. It is especially useful for customers wanting to benchmark matters that are expected to amount to significant levels of spend. If this is the case, it is best to exclude matters in the two smallest categories ($0-25k and $25k-$500k).

• Firm Office State or Firm Office Metro Area. Geography is not as critical for accurate benchmarking as Matter Category and Firm Size; however, it can be useful to narrow the data to law firms billing from particular states or metro areas.  
• Customer Industry, Customer Sub-Industry and Customer Revenue. These controls allow users to only compare the rates they pay law firms to the rates paid by other companies in similar industries or sizes. Note that there is not a high correlation between these attributes and rates paid (once normalizing the data for critical controls). 

Interpreting the Benchmark Output 

Once you’ve narrowed it down to meaningful comparisons, there are a few points to keep in mind.  

• Don’t focus on one data point like the median or average. Consider the range of rates between the 25th and the 75th percentile to be the “normal” range of rates. In this example, even though this company’s median partner rate is higher than the benchmark median rate, the entire range of rates paid from the 25th to the 75th percentile is within the benchmark’s range of rates. 

Pay attention to sample size. More data in the population makes the rate benchmarks more meaningful. If you narrow the population down through the controls a lot and only have a small number of matters and timekeepers in the benchmark, consider removing one of the non-critical controls to expand the data set. Note that if you narrow the data so much that not at least five CounselLink customers meet the criteria, no benchmark data will return.

In this example, there are thousands of matters and timekeepers in the benchmark. Larger populations help make the data more statistically significant.

Timekeeper detail for your organization is available. The Timekeeper Data tab is a useful tool for you to see details about the timekeepers billing you from the firms you engage. This grid report can be sorted based on any of the columns and exported to Microsoft Excel if desired.

To further explore whether your legal spend exceeds the national average, consider a custom benchmark analysis that reveals the rank of the outside counsel you hire in select practice areas and geographies. CounselLink Strategic Consulting Services provides insight into outside counsel comparisons, legal spend benchmarking, and much more. Contact us for a consultation.