According to Axiom, 55% of GCs saw their budgets increase by an average of 4% in 2024. As we go deeper into 2025, 61% expect another boost, this time by 5%.

But a bump in budget doesn’t mean legal teams are flush with resources. In fact, current legal funding is barely keeping up with the surging workload, tightening regulatory demands, and rising costs of outside counsel. Lawyers are still required to tighten their belts and make every dollar count.

Without a refined focus on legal spend management, legal teams will not only struggle to justify spending, but also risk running out of resources before running out of work.

TLDR:

• Legal spend management is the process of tracking, analyzing, and optimizing legal expenses to maximize value.
• To optimize legal costs, companies must centralize spending data, incorporate a budget benchmark, use ALSPs, maintain regular reviews, and integrate legal spend management software.
• Legal spend management software doesn’t just help you spend less, it pushes you to spend smarter.
• Implementing legal spend management isn’t something you do once. You must constantly review and refine your tools and strategies to reflect current business realities.
• When working with vendors and outside counsel, make sure you enforce clear billing guidelines to avoid cost overruns and unauthorized billing.
• Legal spend management is a team sport. Instill a sense of ownership among your team members.

How can companies optimize their legal spend?

Legal expenses are a necessary cost of doing business. But with inflation driving up expenses across the board, companies are keen on finding smarter ways to cut spending and get more value from their legal budgets.

To achieve this without harming the quality of legal services, the following steps must be incorporated:

#1 Centralize your spend data

Centralizing your legal spend data makes it easy to connect to analytics, identify patterns, negotiate better rates, and optimize expenses across the board.

“Most C-Suite executives bank on data and hard metrics and not word-of-mouth. When you have certain metrics that shed light on how legal has contributed to growing the revenue stream of the company, it becomes easier for the GC to make business cases.”

‍~ Gitanjali Pinto Faleiro, General Counsel, Company Secretary & CCO at Greenhill & Co.
Navigating the C-Suite as a GC

#2 Set a benchmark for your legal budget

When setting a benchmark, industry reports aren't always enough. You have to factor in numbers unique to your organization.

Look at how much you’ve spent in past quarters and compare it with what’s coming up. Are there big deals in the pipeline? Or are you expecting compliance changes? 

Once you have a clear picture, set a realistic budget range and keep a cushion for unexpected litigation, unplanned vendor switches, regulatory requirements, etc.

“The surveys often paint with a pretty broad brush, and that can be very challenging. What goes into a legal budget changes across companies. So they [the benchmarks] are not always so helpful. My one caveat here is that I do my own benchmarking. It’s very DIY and manual, but it has gotten me further than the classic ACC or Thomson Reuters benchmark, and the finance person appreciates how I highlight what’s going in the industry that’s more applicable to our business.”

~ Celaena Powder, GC, Seismic
Optimizing Budgets and Resources in Modern Legal Teams

#3 Incorporate ALSPs to save costs where feasible

When you have spikes in routine, medium-to-low-risk legal processes like contract review and compliance checks, Alternative Legal Service Providers (ALSPs) are often better for cost savings, compared to hiring new in-house personnel.

This is even smarter when you're unsure whether this spike will last a few months or become a long-term need.

Also read: Alternative Legal Service Providers: Everything Lawyers Need to Know

#4 Manage legal spend with technology

From e-billing and analytics to contract management and legal spend tracking, there are several tools you can utilize to manage your legal spend more efficiently.

These tools help you avoid legal billing errors, streamline your workflows, and maximize opportunities for saving costs.

Source: Ralph Wutscher via LinkedIn

#5 Create a schedule for routine legal spend review

Always review your legal spending from time to time. This will help you fix leakages early and identify opportunities for maximizing ROI.

What is legal spend management?

When we speak of legal spend management, we refer to the process of tracking, analyzing, controlling, and optimizing legal expenses.

The aim of this process is to plug financial leakages, maximize resources, and prove the ROI of legal activities.

What are the components of legal spend management?

Legal spend management is made up of four core components. They include:

#1 Legal e-billing software

This system handles how law firms send invoices and how in-house legal teams receive, approve, and pay them. It offers a more organized system than traditional processes, making it easier for legal teams to spot errors and prevent overbilling.

#2 Timekeeper rate management

This focuses on evaluating the hourly rates of legal professionals across the different law firms your organization is working with. This process helps you pay what’s fair to each lawyer based on what’s agreed, their experience level, and the complexity of the task they’re handling.

#3 Law firm management

Here, the legal team incorporates tools for selecting law firms, negotiating terms, and tracking performance. This process allows you to know who’s consistently hitting deadlines, spending within budget, or delivering the best results for your organization.

It also opens the door for better pricing arrangements like fixed fees or performance-based billing. That way, your costs can be more predictable over time.

#4 Legal spend analytics

This process allows you to turn legal spend data into actionable insights. Using dashboards and reporting tools, you can understand where your budget is going, which activities are costing more resources, and how efficient your team has been compared to previous quarters.

Key features of a successful legal spend management process

A well-rounded legal spend management process doesn’t end at cutting costs. It focuses on building a legal department that delivers real business value.

#1 Smart budgeting and forecasting

Source: Owen McDonald via LinkedIn

Successful legal spend management starts with realistic budgeting and forecasting.

It sets a ballpark figure for legal costs, factoring in past expenditures, industry averages, upcoming needs, and possible contingencies.

That way, legal teams can have clear financial expectations and keep cost overruns at bay.

Also read: Creating a Winning Legal Budget: Everything you need to Know

#2 Automated legal invoice management

A successful legal spend management process replaces the traditional manual invoicing approach with an automated system. This translates into fewer errors, faster approvals, and better compliance with billing guidelines.

#3 Robust legal spend reporting and analytics

Source: Jeff Hodge via LinkedIn

A well-rounded spend analytics is core to every successful legal spend management process. It allows you to dive into data pertaining to your department's expenditures, identify spending patterns, and get a clear picture of what your cost drivers are.

This translates into smarter spending, better resource management, and financial clarity.

Also read: Legal Analytics: Definition, Tools, and Applications

#4 Strategic vendor and outside counsel management

Legal departments rely on outside counsel and vendors for specialized support. But without oversight, costs associated with this can get out of control.

Successful legal spend management emphasizes strategies for selecting firms, negotiating fair rates, enforcing clear billing guidelines, and making sure that all partners deliver sufficient value.

Also read: How to Leverage Outside Counsel to Manage Multiple Priorities

#5 Contract Lifecycle Management (CLM)

Contracts have direct ties to legal costs. Manage them poorly, and you might end up contributing to revenue leakages, costly disputes, and regulatory penalties.

The goal of contract lifecycle management is to help legal teams save energy, minimize costs, and get maximum ROI from every deal. Through the effective use of CLM, a successful legal spend management process reduces reliance on outside help for high-volume routine tasks, accelerates turnaround times, and eliminates inefficiencies that drive costs upward.

Also read: How Much Are You Losing Without a CLM Platform?

What are the benefits of legal spend management software?

A legal spend management solution is a tool that helps you track, analyze, and control legal expenditures more efficiently. It can sometimes come as a standalone application or part of an Enterprise Legal Management (ELM) platform.

Integrating legal spend management software into your tech stack comes with several advantages, including but not limited to:

#1 Improved cost control

Legal spend management software tracks legal expenses in real-time, so you always know where your funds go. This empowers you to spot leakages on time, prevent cost overruns, and make better financial decisions.

#2 Better compliance with budgeting guidelines

Legal spend management tools come with built-in budgeting functionalities that allow you to set spending limits and make sure invoices align with pre-approved rates and guidelines.

This prevents unexpected overages and keeps legal costs predictable.

#3 Elimination of manual invoicing

Manual invoicing is time-consuming, error-prone, and exhausting, especially when done at scale. Legal spend management software solves this challenge through automation. Automating billing and invoicing speeds up approvals, reduces mistakes, and ensures that billing is always aligned with agreed-upon terms.

#4 Audit readiness

When it's time for an audit, everything you need is already organized. The software keeps a record of all legal expenses, invoices, and approvals, making it easy to show compliance and avoid last-minute scrambling.

#5 Improved collaboration with external service providers

Many legal spend management tools offer collaborative features that make working with outside counsel and vendors easier.

With a centralized platform for invoicing, communication, and performance tracking, corporate legal departments can maintain transparency, enforce billing guidelines, and build relationships that provide real value.

Steps for implementing effective legal spend management

It’s easy to talk about cutting costs. But in the real world, legal work never slows down because budgets got trimmed. The challenge lies in figuring out how to control spending without compromising on quality.

When done right, legal spend management keeps your budget in check without tying your hands, helps you trace every dollar back to its purpose, and proves your team's value to stakeholders.

#1 Bring your data under one roof

If your legal spend data is scattered across invoices, contracts, and emails, you'll have a hard time making sense of anything. Your first move should be to bring all that data into one place.

Consolidating your spend data saves you the trouble of switching between windows. You get quicker access to insights, curb oversight errors, and lay a strong foundation for spend analysis.

#2 Analyze past and current spending behavior

Over the last few quarters, what have been your biggest cost drivers—litigation, outside counsel, or compliance? Are there areas with consistently rising costs? What about recurring issues with billing?

Getting insights into all these areas will lay a solid groundwork for transitioning into a more efficient legal spend management approach.

#3 Define your budgeting goals

Source: Catherine Krow via LinkedIn

Once you've got a clear handle on your spending patterns,  it’s time to set a budget that actually works.

You can start by asking these questions:

• What’s a reasonable budget range, considering past expenses and expected needs for the upcoming quarter?
• Where can we tighten things up without sacrificing quality?
• How much should we set aside for the unexpected?

Your legal team's budget should be realistic, actionable, and aligned with your company's current priorities.

“The first thing is to make sure you delve deeper into the business and the product. And then understand the strategic initiatives for the business. What is the business trying to accomplish? What are their goals, objectives over the next two quarters, four quarters, or six quarters? You can then focus your efforts and energies on ensuring that you're helping move the company forward with those objectives and goals.”

~ Adam Glick, ex-Head of Legal, Intercom
‍Cultivating Meaningful Connections for In-House Legal Success

#4 Implement a legal spend management tool

Prioritize a legal spend management software that easily integrates with your existing legal tech stack. If it doesn't sync with your billing, finance, and contract management systems, it might just be another money burner.

Make sure you research a good number of options and only shortlist solutions that rank high on ease of use, customer support, flexibility, and analytics.

If possible, request a free trial and test the tool in a sandbox environment. This allows you to access real functionalities without messing up live financial data.

#5 Monitor and adjust based on outcomes

Review legal spend reports on a monthly or quarterly basis. Look out for spikes, consistent patterns, and areas of improvement.

Compare actual spend vs budgeted spend, and if there's a sizeable gap, find out why. Also assess vendor performances to make sure external service providers are delivering enough value for money.

#6 Enforce accountability

Legal spend management only works if all hands are on deck. This includes in-house counsel, vendors, and law firms.

Start by setting clear billing guidelines and always demand justifications for budget overruns. Make sure there are consequences for deviating from the guidelines.

Hold vendors and outside counsel to performance KPIs like efficiency, cost savings, and case resolution speed.

Most importantly, instill a sense of ownership into your legal team members. If they treat legal budget like someone else's problem, it's only a matter of time before costs start becoming a problem.

The best lawyers cut costs, not corners

If you think legal spend management is all about pinching pennies, you couldn’t be further from the truth. 

Beyond cost reduction, the goal of legal spend management is to make sure that every dollar you spend has a measurable impact on the company’s bottom line.

Because contracts have direct ties to legal costs, incorporating a CLM like SpotDraft can be a game changer for your team.

If you'd like to see exactly how a CLM can help you optimize legal costs, click here to get a free demo of SpotDraft.

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