How to Calculate Enterprise Legal Management Software Return-on-Investment (ROI)
Published by Matthew S. Markham on Aug 29, 2020
Return on investment (ROI) allows organizations to compare investments based on the amount of money invested and the amount they have earned or lost. ROI calculation as a comparative tool allows legal departments to choose the best overall vendor for a given service or product.
Enterprise Legal Management (ELM) software has proved to be an extremely valuable tool for corporate legal teams, providing them with powerful, automated technology solutions on matter management and spend management operations. When matter and legal spend management are appropriately integrated, maximum benefits and ROI can be realized.
ROI gets more interesting with the integration of workflow automation for legal services requests and document processing.
While the best ELM solutions reduce workload, the investment in the software is not insignificant. A key method of performing cost-benefit analysis involves the calculation of a considerate ROI.
Things to consider when calculating ELM software ROI
When investing in ELM software solutions corporates tend to consider the level of legal spend compliance improvements as one of the most important gauges for what the technology can offer. Here are some of the salient points when considering the ROI that an investment in legal management technology can yield:
- Prioritizing your corporate legal projects is as important as considering the benefits and return on technology.
- Consider the current state of work, collecting inputs in order to measure improvements over time.
- If you are new to legal management operations, you might want to consider how long it will take to implement the technology solution, finding early results through legal spend management that will create the drive for additional technology and process improvements.
- Articulate and quantify benefits that you know are achievable, and your audience will respond to.
- Be realistic and understand that your legal team will not receive the full benefits of technology in a day. So, understand that it will take some time to achieve the full range of benefits, and understand that you should never underestimate the importance of training and change management.
- Evaluate and contemplate whether your current systems can handle any new projects and challenges. Otherwise, it would be best if you considered an investment.
- Consider keeping track on your benefits and savings post-implementation, and it may fund additional projects.
Calculating Enterprise Legal Management Software Return-on-Investment (ROI)
The general formula for calculating ELM software ROI is relatively straightforward. It starts by calculating the net profitability the investment will generate for the company for the period of operation, divided by the software procurement costs and ongoing fees over the same period, typically a year.
In order to achieve a healthy ROI, a good rule of thumb is 5x+, within the shortest time and cost, enterprises need a platform that can integrate within the context of the corporation’s existing IT stack and workflows.
Using LSG as an example, we typically generating 8-10x return on investment (ROI) metrics for our clients:
Annual Savings (% of Legal Spend): 9-11%
Annual Cost (% of Legal Spend): 1%
ROI (x) = Net Profitability Improvements / Cost = 8-10% / 1% = 8-10x
If non-legal vendors are included, typically we can drive another 1-2% of spend improvement, driving ROI towards 10-12x, on average. To give an idea as to whether this is a “good” ROI, we can look at the Blue Hill Research report which quotes a typical ROI from enterprise vendor management at 7-8x. In otherwords, as a vendor, we typically provide and additional 2x of ROI alpha.
To note, enterprises need to understand that the savings are verified and consistent over time. Sticking to this example, we have 15 years of ELM data as backup to our claims and typically provide a sample with a few references during RFP processes.
If you would like to calculate the potential savings for your company in order to figure out your custom ELM software ROI, use our legal bill review calculator.