In an earlier blog, I presented a general approach for manufacturing companies to reduce costs. I would like now to apply this approach to specific areas of corporate expenditure, starting with legal costs. This is a good place to start because making changes to save money on legal costs tend to be less disruptive than other kinds of cost reduction. Most middle market companies use a national law firm or at the very least one of some size. This usually makes sense. If the company gets involved in litigation, patent work, IPO or corporate organization it is helpful to be represented by a firm that has specialists who can address a wide range of issues. Big firms have high overhead and their billing tends to look as follows:
How To Begin Reducing Legal Costs
Big firms have high overhead and their billing tends to look as follows:
Typical prime law firm: hourly rate
Principal or senior partner: $950
Junior attorney: $250
Total hourly: $1200
Unless your business has an immediate legal problem such as being sued by a major investor or customer, about a third of your legal charges probably fall under the heading of General Business Attorney. This involves legal support for such basic processes as maintaining corporate entities, establishing business relationships (e.g. distributor agreements) and negotiating and contracting with a wide range of third parties. These are typically routine matters that do not involve particular risk to the company and do not require specialized expertise.
Much of this “legal housekeeping” work could be assigned to a well referenced general lawyer, probably a sole practitioner who maintains a low overhead structure. The market rate for this lawyer will approximate $300 an hour and the lawyer will likely do office calls with no travel charge hours. The cost savings of $900 per hour ($1200 you are paying currently minus $300 that you will be paying in the future.—a 75% savings). At the same time you should maintain your relationship with your prime law firm—to handle strategic, complex issues that match its capabilities. This makes the change less disruptive than other cost saving moves that can involve terminating existing relationships entirely.
If you remember the point I made in the earlier blog, that 25% should be the minimum threshold to warrant the disruption involved in a service supplier change—this change surely meets that test.
In the next blog I will look at how to reduce the costs of bank transaction charges.
