American companies’ legal budgets are blowing past their counterparts in other countries
American organisations are spending much more on legal services per every dollar of revenue than their peers around the world, according to a new study from Acritas Research.
The median legal spend at US organisations is 0.40% of revenues, which is 166% higher than the 0.15% median for the rest of the world. The second biggest spenders are Canadians, with legal spending at 0.27% of revenues, which is 17% higher than the average for the rest of the world. When it comes to the pennywise, the Chinese take the top spot, with legal spending lower by 87% than the global average.
Lisa Hart Shepherd, Acritas CEO, said there may be an opportunity to improve the value US organisations are getting from money spent on legal services.
“US organizations are operating in one of the most sophisticated, dynamic legal and regulatory frameworks in the world, so their demand for legal services is very high. Compared to the rest of the world, they pay higher rates and pay for much more of their advice by the hour, which may not incentivize efficient working,” she said. “Our findings suggest that there is an opportunity for US organizations to get more value out of their spend and perhaps bring it closer in-line with global averages.”
When it comes to the industries with the biggest legal spending, the real estate, banking, and technology sectors are the top three. The real estate industry spends three times more than the global average, while the banking and technology industries spend at rates that are 160% and 95% above average, respectively.
Economies of scale are also at play for organisations when it comes to legal services spending. Acritas said that as organizations grow, their legal spend as a percentage of revenue decreases. Companies with less than US$500m in revenue spend twice the legal average while firms with US$6bn or more in annual revenues spend a third of the average, the study found.
“When considering budgets, chief legal counsel should ignore global averages and benchmark themselves against their peers by industry, region and revenues to get a truer picture of whether they’re spending in line. Further, many would benefit from exploring whether the department can realize more value from its legal spend by considering different approaches to sourcing legal work,” Shepherd said.
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The median legal spend at US organisations is 0.40% of revenues, which is 166% higher than the 0.15% median for the rest of the world. The second biggest spenders are Canadians, with legal spending at 0.27% of revenues, which is 17% higher than the average for the rest of the world. When it comes to the pennywise, the Chinese take the top spot, with legal spending lower by 87% than the global average.
Lisa Hart Shepherd, Acritas CEO, said there may be an opportunity to improve the value US organisations are getting from money spent on legal services.
“US organizations are operating in one of the most sophisticated, dynamic legal and regulatory frameworks in the world, so their demand for legal services is very high. Compared to the rest of the world, they pay higher rates and pay for much more of their advice by the hour, which may not incentivize efficient working,” she said. “Our findings suggest that there is an opportunity for US organizations to get more value out of their spend and perhaps bring it closer in-line with global averages.”
When it comes to the industries with the biggest legal spending, the real estate, banking, and technology sectors are the top three. The real estate industry spends three times more than the global average, while the banking and technology industries spend at rates that are 160% and 95% above average, respectively.
Economies of scale are also at play for organisations when it comes to legal services spending. Acritas said that as organizations grow, their legal spend as a percentage of revenue decreases. Companies with less than US$500m in revenue spend twice the legal average while firms with US$6bn or more in annual revenues spend a third of the average, the study found.
“When considering budgets, chief legal counsel should ignore global averages and benchmark themselves against their peers by industry, region and revenues to get a truer picture of whether they’re spending in line. Further, many would benefit from exploring whether the department can realize more value from its legal spend by considering different approaches to sourcing legal work,” Shepherd said.
Related stories:
Top US law firm brands named
Outside legal work consolidation on the rise – report
