A benchmark consequence if revenue falls faster than total legal spend

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 true, the leading benchmark metric, total legal spend as a percentage of revenue, might have ticked up or jumped during 2009.

To illustrate, if a $4 billion company’s revenue fell 25 percent but its 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. 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.

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A benchmark consequence if revenue falls faster than total legal spend

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 true, the leading benchmark metric, total legal spend as a percentage of revenue, might have ticked up or jumped during 2009.

To illustrate, if a $4 billion company’s revenue fell 25 percent but its 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. 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.

We welcome comments

Your email address will not be published.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