A 5-Step Playbook for Your First Legal Spend Analysis Project
For many lean legal teams, the idea of a "legal spend analysis" sounds like a corporate luxury that’s reserved for massive departments with dedicated analysts. In reality, understanding where your money is going is even more critical when every dollar counts.
But where do you even begin? When you're buried in day-to-day legal work, finding the time to sift through hundreds of invoices feels daunting.
The good news is that you don’t need a data science degree to get started. By breaking the process down into manageable steps, you can uncover powerful insights that will help you control costs and make smarter decisions.
This playbook is designed to guide you through your first manual spend analysis.
Step 1: Gather Your Raw Materials (The Invoice Hunt)
Before you can analyze anything, you need your data in one place. Your mission is to gather every outside counsel invoice from the last 12 months.
Where to look: Check your email, your company’s accounts payable system, and any shared drives. This hunt can be revealing in itself—if it takes you hours or days to find everything, that’s a clear sign your current process is broken.
What you need: You'll want the final, approved PDF versions of each invoice.
The Goal: Create a single folder on your computer containing one year's worth of legal invoices.
Step 2: Build Your Master Spreadsheet (The Data Entry Phase)
This is the most labor-intensive part of the process. Open a new Excel or Google Sheet and create columns for the key data points you want to track. At a minimum, you should include:
Law Firm Name
Invoice Date
Total Amount Due
Matter Name / Description
Matter Type (e.g., Corporate, Litigation, IP, Labor & Employment)
Now, go through each invoice, one by one, and manually enter this information into your spreadsheet. Yes, this is tedious. Be patient and put on a good podcast. This process will give you an almost physical sense of your legal spend that you can't get from a summary report.
Step 3: Ask the Three Key Questions (The Initial Analysis)
Now that your data is organized, you can start looking for high-level insights. Use your spreadsheet's sorting and filtering functions to answer three fundamental questions:
Who are we paying? Sort your data by "Law Firm Name" and sum the totals for each. This will quickly show you which firms are getting the largest share of your budget. Are you surprised by the results?
What are we paying for? Now, sort by "Matter Type." This reveals where your legal needs are most concentrated. Are you spending more on routine corporate work or on expensive, one-off litigation?
Are our costs predictable? Look at the "Total Amount Due" column month by month. Are your costs relatively flat, or do they have dramatic, unpredictable spikes? This helps you understand the volatility of your legal budget.
Step 4: Dig Deeper (Uncovering the "Why")
The "what" is interesting, but the "why" is where you can make a real impact. Pick one of your top-spending law firms or matter types and dig into the individual invoices. Ask yourself:
Who is doing the work? Are high-cost partners handling tasks that could be done by associates or paralegals?
Are any there any inappropriate charges? Are you being charged for things like block billing or administrative tasks? Expenses like photocopying or excessive printing?
Is there a pattern? For a specific matter, did the costs align with your initial budget and expectations? Where were the overruns?
This qualitative review adds crucial context to the numbers you’ve compiled.
Step 5: Turn Insight into Action (Your Go-Forward Plan)
Your analysis is only useful if it leads to change. Based on what you’ve learned, identify one or two concrete actions you can take in the next quarter.
Example 1: If you found that one firm is consistently more efficient for commercial contract work, you can make a strategic decision to route more of that work to them.
Example 2: If you discovered that multiple firms are billing you for basic legal research, you can update your billing guidelines to clarify your policy.
Example 3: If your costs are unpredictable, you can start a conversation with your top firms about alternative fee arrangements (AFAs) for certain types of work.
This first analysis will be a heavy lift, but it will provide an invaluable baseline. By turning this "project" into a more regular process, you can transform legal spend from a reactive cost center into a strategic, well-managed part of the business.
