As part of an in-house legal team, you’re probably thinking about how you can prove the impact of your work. 

When it comes time for your organization to allocate resources and provide more finances to its teams, you want legal to be at the top of the list. In short, the more value a legal team generates, the greater resources it’ll have available to it. Legal teams are seeking ways to accomplish more with less. 

Here’s where calculating return on investment (ROI) plays a part. 

Capturing ROI helps prove the value of your efforts and can highlight opportunities to improve your process and workflows. By tracking your team’s ROI, you can ensure you’re focused on the right company-wide goals and having the largest impact possible. 

In this article, we’re looking at the importance of measuring ROI for legal teams and how to calculate it. Let’s jump in. 

What is ROI, and why is ROI important for legal teams?

Legal ROI refers to a legal team’s profits or savings compared to how much it spends. It calculates the financial gains of any given initiative.

“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

ROI is important for legal professionals because it helps them create and prove key performance indicators (KPIs). It’s a valuable way to spotlight how a legal department’s efforts help hit its benchmarks and support the organization’s bottom line.

Here are a few advantages of tracking legal ROI:

• Enhance the decision-making process for future investments and client services
• Save time when creating and managing contracts
• Attach a value to both measurable and subjective expenses
• Showcase the value your legal team brings to the table

Also read: Demonstrating Legal Team Value: Effective Strategies and Tips

How do you calculate ROI?

Without a doubt, all legal teams should report on the profitability of their efforts. 

By measuring ROI, you’re taking into consideration resources (time and money) saved, potential outcomes or risks of not having the tool, and the percentage of growth made possible. Here’s how: 

The simplest way to calculate ROI is by subtracting the original cost of the investment from its final value. Divide this new number by the investment cost, then multiply by 100.

For example, let’s say you invest in the support of outside counsel. The cost of these services is $10,000. With the support and strategic insights of outside counsel, you bring in $20,000 in new revenue. When calculating the ROI on your investment, your equation would look something like this: ((20,000 - 10,000)/10,000 x 100).

The resulting number is your return on investment. 

Also read: Evaluating the ROI of Contract Management Software: A Comprehensive Guide

However, this doesn’t consider the unquantifiable benefits like boosting security or increasing productivity. You must often attach a quantifiable number to the time spent conducting manual legal tasks and mitigating risks. 

“You are not going to be rewarded for making smart business decisions that no one will ever see. When you mitigate risk, when you avoid a problem, no one is ever going to say, ‘good job,’ for avoiding that problem because the problem never came to fruition. But that's doing a good job. You're making good, ethical, smart decisions.”

~ Charlotte Morgan, CLO & CAO, Adore Me
Leveraging Entrepreneurial Experience as a CLO

Say it takes an in-house legal team one hour to review a new contract. The team needs to review 200 contracts to keep up with demand and charge an hourly rate of $300. During the review stage, you check for contract accuracy and compliance by hand. After you do the math, your total review time is 200 hours. Multiply that by your $300 hourly rate for $60,000 spent on contract review. 

Compare these numbers against how much time you’d save—and therefore money saved—by investing in a CLM tool that automatically scans for contract discrepancies for you. Doing so helps build the case for why a legal team needs a new tool or software. 

“I built trust with quantitative, factual reporting to Finance, Strategy, and the CEO, as well as working hard and proving my value, while owning my seat at the table. Doing that requires an enormous amount of effort. It’s important to have a vision and go to your business leaders with the metrics showing how they align with the business strategy.”

~ David Lancelot, ex-VP Global Head of Legal, eBay Classifieds
Embracing Legal’s Role as Business Co-Leaders

When it comes to advocating for contract tooling, hands-down, the best thing legal teams can do is attach financial value to their efforts based on hourly rates and time spent working on the task. How much money would the entire organization save with a CLM tool? How much more efficiently would a legal team be able to work with one on deck? 

Don’t forget to take the potential outcome without a tool into consideration. What are the risks? How expensive could they be? How would a tool help mitigate them? Make sure to paint a complete picture of the contracting process to showcase legal ROI. 

Also read: What Is Legal Operations?

SpotDraft helps improve ROI so you can focus on growing

Legal teams play a central role in any company trying to scale. With growth comes increased risk and more contracts that will require the input, guidance, and support of  legal teams. They need a way to routinely capture and improve their ROI. 

That’s where SpotDraft enters the fold. 

SpotDraft provides a custom-built dashboard that allows you to capture valuable contract insights that prove a legal team’s impact. Use the data to showcase how the team’s efforts support the company’s bottom line and close deals faster. All this information is securely stored in one reliable database that everyone can see. 

Shine a spotlight on legal’s ROI by capturing contract insights and business value. Book a free demo with one of SpotDraft’s experts to learn more today.