How Legal Teams Can Justify ROI on Legal Tech Investments

How Legal Teams Can Justify ROI on Legal Tech Investments

Legal teams know that securing budget for legal technology can be difficult, especially since they traditionally have little to no budget. However, with more organizations shifting towards digitizing their workforce and adopting solutions to increase their bottom-line benefits, they can no longer doubt the return on investment that legal technology brings to the table such as legal workflow automation software. By learning to define and justify the ROI for buying legal technology, legal teams can bring immense value to their organizations without sacrificing any more resources to meet deadlines and client needs. There are a few things legal teams should look at when looking justify the ROI of legal tech.

Categories for ROI Assessment

There are four main categories legal teams need to look at when assessing the ROI of their legal technology assessments. These categories help convey the importance and necessity of legal technology within the organization and are an essential component of an ROI analysis:  

• Profitability – Determine whether adopting this innovative technology will help to reduce costs by saving in-house lawyers' time;
• Capacity – Look to see if there is room for improvement in the volume of work that in-house lawyers can do;
• Client Satisfaction – Investigate if it is possible to raise the level of client services that will improve the overall client experience;
• Internal Satisfaction – Lawyers are an expensive and limited resource for the business. Using legal tech can make the job easier and more enjoyable as it reduces the need for tedious, manual work.  

Segmenting your ROI analysis this way can also help you view the possible ROI through a variety of lenses to create a solid business case or argument for adopting legal tech. Although these categories do not make definitive, quantifiable justifications for ROI on legal tech, they assess the long-term value it will bring to the department.

How to Measure ROI

After evaluating your ROI through the lens of long-term investment, setting up a timeline to measure your legal tech’s ROI will provide important benchmarks to see whether your software has brought further value to your organization. There should be a four-stage process for this measurement:

• Before implementation: Even before you implement your new technology, it is imperative to provide your leadership teams with an estimation of ROI to justify the new investment. This will make buy-in much easier and offer a benchmark to measure its value.  
• Immediately after implementation: After you implement your new technology, you should conduct a baseline assessment of your key ROI measurements. This will help you later down the road when you begin to analyze the benefits of your legal tech.  
• Six months after implementation: Now, you should have already started some new projects with your legal tech. How has the tech been helping the legal team so far? Has your team or organization realized the promised or planned benefits? Is more data required to conduct a fair analysis of this new technology?

• Year after implementation: After the first year, you should have enough data to determine whether you have saved time, money and other resources from implementing your legal tech. Look at the goals you set when you first adopted the technology, and measure where you are now. Did you hit your target? Did you exceed or hit the ROI you projected? If we failed, how do we justify continuing in this investment?

Defending your legal technology purchase by justifying your ROI should be more than just an optional exercise for your legal department. It needs to be an operational expectation and thorough, thought-out process that can help legal teams procure more technology in the future.  

The key to any legal team’s success is investing in legal technology to help drive your team forward, but only if you can defend its bottom line to the business.  

Calculating Your ROI

An effective business case to demonstrate ROI in terms of time and cost savings for both legal team members and the business users of legal services. The following formula helps identify your “green dollar savings,” I.e., real dollars your organization can reallocate or save.

To determine your Net Benefit (the top line of the ROI equation), start by calculating the total human hours and cost spent working on service agreements each year.  

Time & Frequency:

• How often do we work with service agreements?
• How long does the entire workflow take each time?

Cost:

• How many lawyers and stage are involved in the workflow?
• Use the average lawyer’s salary to calculate the cost.  

Before & After:

Automation reduces the time and cost to complete workflows, but it doesn’t eliminate them. You want to pinpoint the differences in time and cost before and after automation. To do that, calculate for time, frequency, and cost twice.  

• The “before” number corresponds to the state of business prior to legal automation when lawyers rely on manual processes to complete workflows.  
• The “after” number corresponds to the state after implementing legal automation.

ROI Percentage:

Determine your investment cost, which is typically vendor licensing fees.  

• Subtract the investment cost to discover your Net Benefit.  

• Multiply the Net Benefit by 100% to find your ROI percentage.  

The example considers Legal software for in-house that costs $25,000 per year. Lawyers spend three hours per service agreement at $90 per hour, creating 240 service agreements each year.

Other Examples of Qualitative ROI

Legal technology excels at helping to meet the strategic needs of the wider business, often leading to “blue dollar savings,” i.e., profits from benefits like:

1. Standardization and process enforcement: Templates and guided workflows in legal technology software can embed accuracy, consistency and uniformity into company culture.  

2. Risk mitigation: Standardization, process uniformity and embedded controls also help mitigate risk.  

3. Operationalize organizational values: Automation allows you to reliably embed corporate policies and values into everyday operations.  

4. Knowledge management: Achieve consistency and continuity as automation processes codify, maintain and distribute institutional knowledge across the organization.  

5. Improved client experience: Self-service tools increase accessibility to legal services and speed up turnaround times to improve the legal department’s relationship with the rest of the organization.  

6. Accelerate deals: Business teams can move more quickly to capture fast-paced opportunities when you eliminate bottlenecks and speed approvals.  

7. Metrics-led decisions: Legal technology helps digitize workflows, enabling the collection and tracking of data to report on monitored activities using a variety of analytical techniques.  

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