Acritas legal spend chart. Courtesy of Acritas.

Six out of 10 in-house law departments allocate their legal spend inefficiently, according to a new study from the global legal researcher Acritas Research.

U.S. companies should allocate 40 percent to 70 percent of their legal spend internally, the study recommended—or else run the risk of not being able to optimize their dollars.

The figures come from Acritas' annual Sharplegal study, for which it conducts over 2,000 interviews with senior in-house counsel in large organizations around the world each year.

Lisa Hart Shepherd, CEO of U.K.-based Acritas, said in an interview Wednesday, “It was interesting to note how economies of scale came into play in terms of the internal team size required to service different sized organizations.”

Hart Shepherd said legal departments with less than $200 million in revenue had more than 10 times the number of lawyers per $100 million of revenue than larger departments with more than $20 billion in revenue. “And yet the average balance of budget allocated internally didn't really change by size,” she added.

She cautioned, though, that the pattern of law department spending can differ by country and industry sector. The study said in higher spending countries, it appears keeping too much budget in-house drives inefficiency. The 40 to 70 percent optimal range applies specifically to U.S. companies.

“Russian companies, for example, have far lower external spend and much bigger in-house teams,” Hart Shepherd explained. “So it's important to find a relevant peer group benchmark.”

The report showed that, on average, organizations reported 0.4 lawyers per $100 million of revenue. This varied according to company size, with the smallest companies in the study (revenue $50 to $500 million) having 0.9 lawyers per $100 million of revenue, and the largest companies (revenue $6 billion-plus) having 0.2 lawyers per $100 million of revenue.

Hart Shepherd said she was surprised by the relatively small number of lawyers most organizations have. “On average, a $1 billion company has four in-house lawyers,” she said. “Surely there must be benefits to having a larger team for many organizations, both from a cost perspective and ensuring advice is integrated into the business.”

She said the trend is for in-house legal teams to spend more internally. “We have seen the internal spend grow in recent years, and it's increased by 11 percent since we first measured it in 2012,” Hart Shepherd said.

In a related study the research firm reported in May that companies in the United States spend 166 percent more on legal services per dollar of revenue compared to companies in other parts of the world.

Acritas legal spend chart. Courtesy of Acritas.

Six out of 10 in-house law departments allocate their legal spend inefficiently, according to a new study from the global legal researcher Acritas Research.

U.S. companies should allocate 40 percent to 70 percent of their legal spend internally, the study recommended—or else run the risk of not being able to optimize their dollars.

The figures come from Acritas' annual Sharplegal study, for which it conducts over 2,000 interviews with senior in-house counsel in large organizations around the world each year.

Lisa Hart Shepherd, CEO of U.K.-based Acritas, said in an interview Wednesday, “It was interesting to note how economies of scale came into play in terms of the internal team size required to service different sized organizations.”

Hart Shepherd said legal departments with less than $200 million in revenue had more than 10 times the number of lawyers per $100 million of revenue than larger departments with more than $20 billion in revenue. “And yet the average balance of budget allocated internally didn't really change by size,” she added.

She cautioned, though, that the pattern of law department spending can differ by country and industry sector. The study said in higher spending countries, it appears keeping too much budget in-house drives inefficiency. The 40 to 70 percent optimal range applies specifically to U.S. companies.

“Russian companies, for example, have far lower external spend and much bigger in-house teams,” Hart Shepherd explained. “So it's important to find a relevant peer group benchmark.”

The report showed that, on average, organizations reported 0.4 lawyers per $100 million of revenue. This varied according to company size, with the smallest companies in the study (revenue $50 to $500 million) having 0.9 lawyers per $100 million of revenue, and the largest companies (revenue $6 billion-plus) having 0.2 lawyers per $100 million of revenue.

Hart Shepherd said she was surprised by the relatively small number of lawyers most organizations have. “On average, a $1 billion company has four in-house lawyers,” she said. “Surely there must be benefits to having a larger team for many organizations, both from a cost perspective and ensuring advice is integrated into the business.”

She said the trend is for in-house legal teams to spend more internally. “We have seen the internal spend grow in recent years, and it's increased by 11 percent since we first measured it in 2012,” Hart Shepherd said.

In a related study the research firm reported in May that companies in the United States spend 166 percent more on legal services per dollar of revenue compared to companies in other parts of the world.