10 STEPS TO A

SMARTER IN-HOUSE
LEGAL BUDGET
There’s one thankless task every year that in-house counsel dread:
preparing an annual Legal Department budget.
Adding to the fun is that you must figure out in
October what you’ll be spending in August of the
next year. But no one in the business is crying any
tears for Legal. They’re all going through the same
process. And as we all know, Finance is telling you
to be prepared to cut spending (or at best be flat
year-over-year). Somehow, someway, you’re going
to have to find a way to come up with a spending
plan that tries to account for the knowns and
unknowns associated with providing legal services
to the company.
Sterling Miller, the general counsel of Marketo, Inc.,
nailed budget season for corporate legal
departments: a time of year when lawyers are
expected to become both CPAs and clairvoyants.
With a smart framework, however, compiling the
budget can be more than tedium and guesswork
– it can be a powerful and thoughtful process for
shaping the department you want.
We have developed a 10-step process for
creating an in-house legal budget, and we have
built a legal department budget template to help
you get started. While every department,
organisation and accounting system are
different, this tool will provide you a solid first
draft for your discussions (and negotiations) with
Finance. Throw out your “last year plus five
percent” thinking, and let’s get started.
01
1
 1 THINK STRATEGICALLY &
STEP

THINK LONG-TERM
The whole purpose of a budget is to ensure you have the resources to execute for your department
and the company as a whole; it’s imperative that you begin with clear knowledge of what to expect in
the year ahead. Before putting pen to paper (or keystroke to Excel):

Visit your division leaders and C-suite to learn about their initiatives and related legal needs.
A new geographical territory, product launch or merger could have a major effect on your legal
spending, to be sure – but the more closely your budget mirrors the goals and objectives of the
company, the more you will be seen as a source of value, not cost.

Review your Legal Department data and identify ways to improve your performance – once
you have ideas for improvement, ensure your budget captures the cost or the savings. If you
plan to move low-strategic-value work to cheaper law firms or introduce some business
“self-help” tools to eliminate work, these projects should be reflected in your budget.

You’ll see our budget template covers a three-year window. We recommend drafting your legal
department budget over three years; this will show the effects of your financial decision beyond the
short-term. If you plan to tighten external legal firm budgets this year, you’ll see the savings in the
years ahead. If you hire a new paralegal this year, you’ll see the effects of salary raises too. Budgets
aren’t done in a vacuum; a three-year window provides clarity.

2
 2 ACCOUNT FOR YOUR PEOPLE COSTS
STEP

As one of your largest budget categories – and easily the most critical one – this is important to get right.

Key considerations:

Are our current staffing levels appropriate?

Do we plan to grow or shrink our legal team in the next year?

Should we shift any of our outside counsel spend to new hires? (According to a Gartner
survey, Legal Departments are shifting more work in-house, with the proportion of external
legal spending declining from 50% in 2018 to 44% in 2020.)

Do we anticipate any retirements?

What salary increases should we expect or lobby for?

What turnover might we expect, and should we plan for recruiter fees?

Enter your staff numbers and salaries into the Legal Department Budget Template – the
worksheet will calculate year-over-year changes and total costs.

3
 3 PLAN YOUR OUTSIDE SPEND
STEP

This is likely to be your largest budget category. According to the 2021 Law Department Management
Benchmarking Report commissioned by The Association of Corporate Counsel (ACC) and Major, Lindsey
& Africa (MLA), external spend accounted for approximately 51% of the total Legal Department spend.

Start with assessing your “business as usual” work. Refer to your Department data – or your law firm bills
– to get a handle on reoccurring, necessary work:

What are the typical number of engagements for your traditional firms, legal process
outsourcing or flexible resources?

What are the average costs of these engagements? Enter these numbers into the Legal
Department Budget Template, and it will calculate adjustments for inflation and
business growth.

Next, refer to the business strategy information you collected in Step One. What special
project work do you anticipate in the year ahead? Enter your estimates into the budget template.
How will your current litigation affect the year ahead? Assess potential disbursements.

Your colleagues in Finance are not known for their appreciation of surprises; have upfront discussions
with them so they have a full appreciation for the context and add these costs to the Legal Department
budget worksheet.

While you’re working on your outside spend, get ahead of any surprises. Law firms are notorious for
sending rate increase letters long after your budget has been submitted and approved. Consider
breaking that pattern - ask your major legal providers for a budget-season sit-down to talk not only rate
increases, but efficiency and value.

4 PLAN FOR CONTINGENCY COLLECTIONS

STEP

If you anticipate any contingency revenue or other collections,

make sure to capture these.

Include the litigation value, contingency fee and likelihood of

payment. These activities can show your Department as a
revenue generator, not just a cost center.

4
 5 FUND YOUR TECHNOLOGY TOOLS
STEP

Take an inventory of the technology tools you currently

have. For each one, what expenses do you anticipate in
the year ahead? Consider maintenance / licensing fees
and upgrade costs. If you are hiring new lawyers or
staff, remember to factor in subscription or user costs.

Now think about your technology wish list. Break out

your legal technology roadmap (or go here to create
one). What new tools should you plan for this year and
in the two years ahead to drive improved productivity?

Add your technology costs to the Legal Department

Budget Template.

6 ACCOUNT FOR YOUR

STEP

KNOWLEDGE RESOURCES

What do you rely on for legal research, industry

research and continuing legal education? Add these
costs to the Legal Department budget worksheet.

This is a good time to consider skill gaps or succession

planning for your Department. Are there areas where
your team needs additional aptitude? If you anticipate a
key Department member’s retirement, will others need
training to take on his or her duties? Are there industry
events, such as those from the Association of Corporate
Counsel or Corporate Legal Operations Consortium,
that provide special networking value?

5
 7 DOCUMENT YOUR OPERATING COSTS
STEP

Don’t forget the little things: Your budget also should include team travel, team-building activities, even
the Department holiday party. The Legal Department budget worksheet includes fields for your
miscellaneous operating costs.

8 ADJUST FOR DIVISION

STEP

CONTRIBUTIONS
Again, every Legal Department and organization is different; your protocols for assigning costs to
your business clients will vary. However, this will be a step for most in-house legal teams. The Xakia
Legal Department Budget Template has a specific section for division contributions; enter yours here.

At this point, you have a strong first draft for your Legal Department budget – while it may be subject to
a few tweaks and situation-specific adjustments, you have the foundation.

But you’re not quite done yet…

9 ANTICIPATE EXPENSES THAT MIGHT

STEP

ROLL OVER INTO NEXT YEAR

We appreciate the advice of Marketo’s Sterling
Miller: Make sure you properly accrue for any legal
bills from this year that might creep into next year If a firm sends you a bill in May
– and encourage your law firms to submit
for work done last November,
year-end bills as soon as possible.
my suggestion is you reject it
As he noted, it can be “a real kick in the shins” and tell them ‘sorry, too late
when this year’s bills start to absorb next year’s
budget. Mr. Miller advises a reminder email
and out of policy.’
toward the end of the year:

6
 10 RESOLVE TO MONITOR SPENDING IN
STEP

THE YEAR AHEAD

A survey by the Association of Corporate Counsel asked in-house lawyers a simple question: “Is your
Department spend within budget?” While 54 percent said yes, 37 percent said no, and perhaps most
troubling, 8 percent had no idea. We can’t imagine those 8 percent who don’t track their budgets are
much beloved by their CFOs; don’t be one of them.

If you don’t currently have the legal operations systems that allow you to track expenses throughout the
year, resolve to put them in place next year. A straightforward management tool like Xakia can provide
you real-time department dashboards, automate your reporting, save you hours of time poring through
ledger reports and law firm bills… and make next year’s budget process even easier.