The ultimate metric: total legal spending (TLS) as a percentage of revenue

The most telling and honest benchmark metric for a law department is its total legal spending – its inside budget plus what it spends on outside vendors – divided by its company’s revenue for the year. TLS/Revenue.

I set aside the fact that financial companies often use assets instead of revenue. Continuing, it’s only too true that perfect accuracy of TLS/Revenue cannot be had, as is attested anytime several law departments submit the metric. Many methodological slippages have been previously discussed. (See, for example, my post of May 30 about including judgments, settlements, and fines; and July 18, 2005 on internal, non-lawyer time spent on litigation.)

One advantage of TLS / Revenue is that compared to other legal department metrics it’s less susceptible to gaining. The law department with few in-house staff may well spend more outside, the parsimonious budget may be matched by low corporate revenue. The uber-metric is favored also because it is a ratio so all companies can be compared on it, regardless of size; revenue must be reported publicly (at least for stock exchange companies); and the ratio can be tracked by a law department over a period of years even without having any external benchmark comparisons. It also makes sense to senior executives and can be compared to the same ratios for other staff groups. (See my post of April 9, 2005 with data about other staff group ratios.)

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