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Why is it so important to source your benchmarking intelligence from invoice data?

Corporate law departments around the world are wisely looking to data analytics to help ground their decision-making to verifiable, practical intelligence. Internal historical data is a great place to start, but it is also important to contextualize that information against reliable, up-to-date market data. This is what puts your own experience into perspective and gives you a 360-degree view of your business environment. Benchmarking intelligence yields greater insight that leads to better decisions, increased value and improved results.

In-house counsel have more industry data sources available today than ever before. With so many options, how do you decide which tools will work best for you? How can you know which will provide the precise statistics that you will need to make well-informed decisions? The answer lies in the source of the data that supports the tool.

Where does legal intelligence data come from?

While solutions can have varying levels of bells and whistles and slick or simple interfaces, the results are, by definition, only as good as the data that backs them up. Legal spend data can be collected in either of two ways: from surveys of law firms and legal departments that ask respondents to report their experiences, or directly from the invoices that law firms send to their corporate clients.

At first glance this may seem like a minor distinction of interest only to data scientists, but that isn’t the case. Invoice-driven data provides a wealth of options that are not available from survey-based information. And conversely, relying on financial data that originated with surveys faces some challenges.

What limitations exist with surveys?

Surveys are a valuable method for collecting many kinds of data. They are the best way to understand the prevailing opinions of a group of people. They provide businesses with necessary insight into their customers’ satisfaction with their products and services. When you want to know what people think, asking them in a survey is the most direct way to find out. But if the information you need is factual and detailed, a survey is not the optimal way to gather it.

When it comes to understanding legal performance, asking legal professionals to remember every detail of their engagements, and to periodically report on them in a survey, isn’t efficient and invites problems with the data. Because surveys rely on recollection, they have a number of inherent limitations where factual data collection is concerned:

  • Surveys point towards aspirational staffing models because a respondent’s report of how matters have been staffed is naturally impacted by their opinion of how a matter should be staffed. Invoice data reveals who really does the work and how long it takes them to complete tasks.
  • Law firms are naturally inclined to report their rack rates when surveyed — after all, these are the rates that they consider their baseline. But in reality, their billed rates to corporate clients are often subject to arrangements that lead to lower realized rates. It doesn’t make sense to benchmark against rates that aren’t actually being charged in the market.
  • No one is capable of remembering every detail of every legal bill and it isn’t fair to expect busy professionals to look up their records and crunch the data themselves as they fill out a survey. Well-meaning respondents whose only wish is to report accurately may lack access to some requested information and do not have perfect recall.

Surveys are an essential tool and a good starting place, but they lack the necessary depth to capture actionable information about legal spend. For that, you need to consult the source records.

How can invoice data help?

The Legal Electronic Date Exchange Standard (LEDES) file formats, used for legal e-billing, capture a huge amount of detail about the work being invoiced. In addition to the total amount owed, every invoice file includes fields for the date of the work, names and roles of the people who performed it, number of hours worked, type of work done, hourly rates for each person, any adjustments made, etc. There is no survey comprehensive enough to record so much specific information about every matter in your portfolio. And the larger the pool of legal spend data a tool can access, the more reliable its insights are because its sample size represents more transactions over a longer time period.

With so much data captured, invoice-based solutions allow you to drill down into specific scenarios to more accurately set budgets and expectations. What staffing profile should you plan during the discovery phase of an employment and labor matter and how can you expect it to change if the case goes to trial? How much savings could you recognize by getting a venue change approved from Washington, D.C., to Denver, and would the savings be greater with a large international firm or a smaller boutique firm? Invoice data provides reliable answers to these types of questions because they are based on real transactions between firms and clients.

That specificity, combined with a large database of invoices, also supports much more effective trending analytics over the course of defined time periods. If you know, for example, that your senior management is going to ask you to explain the increase in your legal spend over the last six quarters, you will want to arm yourself with information about how much the market average increased in that same time period. Survey-based benchmarks cannot provide measurements for such precise time periods since they don’t capture data about how much vendors were charging on particular dates. But because dates are required on every invoice, you can easily use an invoice-driven tool to paint that important contextual picture for your management team.

Benchmarking intelligence is helpful in building stronger, more value-based relationships with outside counsel. The essential insights it provides, such as how to budget for matters, how long matters should take to complete, and who should be assigned to the work, are a concrete foundation on which you can base the most critical business decisions. But that foundation can only be as solid as the quality of the data from which it is derived. If you are using analytics, make sure that the information you’re counting on reflects current invoice data that can answer your most complex and specific questions.

Contributing Author

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David Moran

David Moran, Director of Data Management for Legal Analytics at TyMetrix, is responsible for leveraging state-of-the-art technology to cut through the complexities of managing big...

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