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Total legal spending as a percentage of revenues has remained relatively constant over past five years

Total legal spending as a percentage of revenue (TLS/Rev) leads the metrics pack in terms of importance (See my post of Dec. 5, 2007: stability of the ratio over a decade; and Jan. 12, 2009: benchmarks over time with 8 references.).

Longitudinal data from a law department benchmark survey appeared in a study recently of a law department I assisted. The data, for the five years from 2004 through 2008, arrayed total legal spending as a percentage of total revenue for the law department’s industry group, revenue supported ($3-6 billion), and number of attorneys (11-25).

Of the three groups, the greatest variance was in the ratios by attorneys (a range of 0.18), then by industry (range of 0.17), and finally revenue (0.15). One interpretation is that law departments vary much more in their spending characteristics if the category is number of attorneys, because that slice includes extremely different structures, industries, and legal issues confronted. However, the industry slice was only slightly less heterodox, which might be due to the inclusion in an “industry” of companies that are actually not all that similar (See my post of Dec. 19, 2007: “industry” oversimplifies complicated companies; Nov. 25, 2006: segment benchmarks; April 16, 2007: use industry comparators, which is the basis for compensation studies; April 23, 2006: golden apples to apples; Aug. 28, 2008: how to correct TLS/Rev across industries.).

More empirical work needs to be done.

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