How Law Firms Can Measure ROI on Legal Tech Investments

Josh Nardo | August 19, 2021

Law firm leaders are well past the point of approving large new technology expenditures simply because they are impressed with the latest fads or afraid of missing out on a new tool that other firms are rumored to be buying. Firms are moving toward technology solutions that drive firm, business, and practice value. Innovation is taking hold. Bottom line benefits are now core to making technology decisions, and balancing scarce IT and firm resources.

But there is much confusion and uncertainty about how law firms can measure return on investment (ROI) on their legal tech investments. Do we try to pin down specific potential cost savings to the firm? What are other considerations outside of cost savings? And even if we’ve settled on the areas we want to measure, how do we measure success?

Of course, there is no single answer to this challenge. As was reported recently in Legaltech News, most firms have learned they need to “balance hard data with soft metrics” to find an ROI assessment that provides the most actionable insight on new legal tech investments. However, there are simple steps you can take to get moving in the right direction.


Three Areas to Evaluate

For starters, there are three main IT areas within the firm that can and should be evaluated for ROI.

First, there is the traditional IT infrastructure. This is the base technology that powers the day-to-day operations of the organization, such as networks and computers. Second, there is the tech that is deployed internally, the software and productivity tools to help manage the law firm business. And third, there is the technology that supports the legal work done by the firm’s practice groups. This is the tech that enables the delivery of legal services to clients.


Key Categories for ROI Assessment

Within each of these three areas, there are four primary categories in which to assess ROI on tech investments. Some of these categories will be more appropriate for one IT area than others, but each of them is an important component of your ROI analysis:

  • Profitability — can we reduce costs, or can we drive new revenues in specific areas of the firm;
  • Capacity — can we improve the volume of the work that we are able to take on and support;
  • Client Satisfaction — can we raise the level of our client service or otherwise improve our clients’ experiences with our firm; and
  • Internal Satisfaction — can we make the practice of law easier or more enjoyable for our attorneys and professional staff.

Segment your analysis according to each of these categories so you view the possible ROI through a variety of lenses, not just the immediate dollars and cents connected to an individual technology investment. This allows firms to begin making quantitative and defensible decisions about tech investments individually, as well as compared to competing investments that need to leverage the same scarce resources.

An outside service provider — particularly one who has expertise in helping law firms identify the optimal IT strategies, people and processes that drive their businesses forward — can assist with objective analysis that serves to both frame and jumpstart the ROI evaluation. An outside expert can also be very helpful in providing a holistic approach to IT portfolio planning by working with you to determine the specific kinds of legal technologies you need and how those technologies can deliver meaningful business results to the firm.


Measuring ROI

Once you have clarity on the IT areas you wish to evaluate and the specific ROI categories you will analyze, there is a three-stage process for measurement:

  1. Baseline. Determine the business case for the technology and conduct a baseline assessment of your key measures. This will document the starting place for analysis.
  2. Six-month mark. Conduct an interim assessment six months after deployment of the technology across all of your measures. How are we doing so far? Do we need better data in any of our categories to conduct a fair analysis?
  3. 12-month mark. Conduct a secondary assessment 12 months after deployment. In most cases, this should be sufficient time to fully implement the technology and scale it up across the user base. How did we do? Did we hit or exceed the ROI we projected? Or did we fail to meet the return we need to justify continued investment? In some cases, there may be a need for additional ROI measures due to evolving usage within the firm.

ROI measurement of legal technology investments should be more than just an optional law firm administrative exercise. It needs to be a systematic and disciplined process that guides a firm’s budget planning and strategic IT priority setting. Consideration of tech ROI in this way will help a firm successfully change its thinking away from IT solely as a cost center and toward IT as a profitability engine.

Legal technology can drive your firm’s business forward, but only if you subject each new investment to rigorous evaluation for its potential benefits to the bottom line.