| Executive summary: The business case for AI in legal spend management is built on two levers: Spend Avoidance, which uses AI’s superior accuracy to capture non-compliant spend, and Opex Savings, which reclaims the hours of manual review time. For a typical enterprise, this can result in significant ROI with short payback periods. Organizations can use these gains to pursue hard savings or optimize for value. |
Wrapping Up the Series
This is Part 5 of our 5-part series, “Stop the Leak: A Guide to Mastering Legal Spend.” In the first four parts, we examined the hidden costs of manual invoice review, explored AI-driven cost savings, and created a playbook for reallocating freed time. We have stopped the leak and charted a new course for your most valuable talent. The final step is to prove this progress with a clear, defensible business case.
In this article, we address the value of AI in legal spend by exploring the potential ROI on strategic investment that results from greater financial control, operational excellence, and the value accelerators made possible by time savings.
Claiming Your Share of the Market Discount
The legal industry operates within a well-documented gap between what law firms bill at standard rates and what they ultimately collect, known as the standard-to-collected realization rate. According to a Thomson Reuters report, law firms collected roughly 82% against their standard rates in Q2 2024. This implies a potential savings opportunity of up to 18%, evidenced by write-downs and negotiations.
So if the market has an 18% realization gap, why should your organization pay more?
The actual realization may depend on various factors, yet the conclusion is clear: You should not pay more. Organizations with a data-driven approach to spend management should pay less than standard pricing. And those using specialized AI for invoice reviews should consistently claim more share of this market discount.
The payback compounds further when organizations reinvest time and insights gained from AI proficiency into the strategic functions presented in Part 4, for example, by optimizing the vendor panel, negotiating more certain Alternate Fee Arrangements (AFAs), and improving service delivery. These gains create a virtuous cycle of automation, insight, and strategic action which leads to greater financial control.
The Levers of ROI in Legal Spend
The business case for AI transformation relies on two primary levers:
- Spend Avoidance — direct cost savings from identifying and preventing non-compliant spend.
- Operating Expense (Opex) Savings — efficiency gains that reduce internal or external review costs.
Lever 1: Spend Avoidance
This is the most significant source of hard-dollar savings. Manual review is “porous”. Research found experienced lawyers are 72% accurate in applying billing guidelines, whereas AI can achieve 92% accuracy. This 20-point improvement allows organizations to capture non-compliant spend that humans routinely miss.
Specialized AI can also auto-approve compliant invoices for payment and route complex or disputes invoices to human reviewers, further decreasing leakage.
Example:
An organization spends $280 million annually on outside counsel. Its e-billing system already delivers baseline savings of 8% ($22.4 million). Deploying AI with 20-point higher accuracy enables the capture of additional non-compliant items. Assuming the AI identifies 40% more detail in this category, the organization realizes $1.79 million in incremental annual savings (calculated as 20% × 40% × $22.4 million).
Lever 2: Operating Expense Savings
Opex savings stem from the hours saved by automating manual invoice reviews, reducing in-house work, or reliance on third-party reviewers. Organizations can either bank these savings or redeploy capacity toward higher-value work, such as vendor management or pricing optimization.
To recap, Part 4 outlined several areas for potential redeployment of resources:
- Strategic vendor management
- Constructing Alternative Fee Arrangements (AFAs)
- Improving legal delivery and automation
- Strategic contract negotiation
- Aligning legal strategy to business objectives
- Early Case Assessments (ECAs)
- Policy development around emerging risks/areas
- Exploring Alternative Dispute Resolution (ADR) strategies.
Example:
The same organization processes 20,000 invoices annually. The average invoice takes 15 minutes to review, and the work is split equally between in-house counsel and operational staff with a blended hourly cost of $115. The annual effort takes 10,000 hours at a total cost of $1.15m.
By automating this process with AI, the organization can eliminate or redirect most of that expense. In this case, operational staff might shift to benchmarking law firm rates, while in-house counsel could spend more time partnering with business units to align legal strategy with organizational objectives.
Putting It All Together
When you combine both levers, the business case becomes clear. Using the example above, the organization reduced legal spend by $1.79 million and opex by $1.15 million, creating a total annual benefit of $2.94 million.
To calculate ROI:
- Divide the total annual benefit by the cost of the AI solution.
- Divide the solution cost by the average monthly benefit ($2.94M ÷ 12) to determine the payback period.
If these calculations deliver a strong ROI with short payback period, the organization likely has a clear business case for AI transformation.
Not all legal spend carries the same risk or savings potential. To refine the model, apply the ROI framework by category (e.g., IP, Litigation, Commercial) to identify where savings are greatest and tailor your rollout for the fastest payback.
Implementation Strategies
Depending on your strategic priorities, organizations can pursue different implementation strategies:
- Pursue Hard Savings
Fully deploy the AI to handle the all invoice reviews to maximize spend avoidance. Bank opex savings by reducing reliance on manual review or third-party vendors. This approach focuses on enforcing billing guidelines and achieving immediate financial benefits.
- Optimize for Value
Control costs while improving the value and quality of legal services. Use AI in a hybrid model that allows human oversight where needed, while redirecting reclaimed time toward vendor management, AFAs, and business-aligned legal work. This approach not only delivers savings but also elevates overall value creation.
Decision Time
Investing in AI-powered spend management is about more than financial efficiency. It’s about redefining the impact of the legal department.
By embracing an AI-first approach to invoice review, you are tackling the core challenges that keep legal and finance leaders up at night:
- Shifting from reactive cost management to proactive risk mitigation.
- Transforming legal spend from unpredictable liability to forecastable expense.
- Becoming a stronger strategic partner to the business.
- Empowering legal professionals to focus on high-value, strategic work.
The Gist of It
Legal overspend is a multi-million-dollar problem that can be solved with AI.
A defensible business case rests on two core levers: Spend Avoidance and Opex Savings.
Spend Avoidance taps the 18% gap reflected by write-downs and negotiations and can be achieved with AI-powered invoice reviews, which research shows can be 92% more accurate than human reviewers.
Opex Savings emerge from reclaimed hours of manual work. Organizations can use these gains to pursue Hard Savings or Optimize Value allowing leaders to tailor strategies to specific needs.
The fundamental calculations that underpin any business case are logical and strong. The question now appears not if you can afford to invest in AI, but rather, how long can you afford not to?
