How much do law firms feel the cost of e-discovery?

An old acquaintance used to frame the costs of an annual news subscription his business sold in terms of the prospective customer’s daily Starbucks spend. “For less than the daily cost of a cup of coffee, you can have full access to…” the pitch went. In that instance, the service was priced at $200 per year for an individual subscription and marketed to a wealthy audience — so, assuming the product was of reasonably high quality, the sell was an easy one. Still, for most prospective buyers, the true cost of the product was easier to grasp at 54 cents per day than at $200 per year.

What if we thought about e-discovery software and services in those same terms? Certainly, in most cases, most e-discovery costs incurred by a law firm are simply passed through to the client — so they are not felt at all assuming the client is satisfied with the work (a big assumption, granted). But consider the “overhead” costs associated with e-discovery, meaning everything that isn’t billed back to the client either because the firm offers that service as a value-add or because it can’t find a way to make, or otherwise does not feel comfortable making, the client pay for it.

How much do the people footing the bills at law firms — the equity partners — really feel those costs? And what are they getting in return? Consider the chart below, where the figures in the black box represent the annual out of pocket costs incurred per partner at various size law firms at different annual e-discovery software/service subscription rates.

Screen Shot 2016-01-19 at 3.30.45 PM

e.g. A $500,000 annual subscription for an e-discovery product costs each partner at a 400-partner firm $1,250 per year; A $100,000 annual subscription for an e-discovery product costs each partner at a 25-partner firm $4,000 per year. 

Admittedly, this is a quick-and-dirty analysis, and doesn’t account for the financial quirks of individual firms. Setting that aside, what’s interesting is that, at the lower end of the spectrum, where firms with 100 or more attorneys are paying $100,000 a year for e-discovery software, the Starbucks comparison still applies. Defrayed across 200 attorneys, the daily per-attorney cost to bring a $100,000/year discovery platform in-house ($2.73) is less than that of a tall latte ($2.95). That’s also true for the largest firms, even at the more expensive subscription rates.

And yet, when you talk to law firms about e-discovery, the objection that most often arises deals, in one way or another, with cost — even though the chart makes clear that those costs are often negligible, especially for larger firms who could recoup them simply by empowering billable staff to bill a few more hours a year each.

The trick is framing those costs in terms of value. After all, negligible costs can add up. E-discovery software is hardly the only discretionary spend a firm may choose to pursue (see also: training, bonuses, breakfast spreads, marketing, additional hires and a million other things) and good businesses don’t spend money on anything unless it produces ROI.

The question then, using the $100,000 subscription/100 partner firm example, is: What does $1,000 per partner per year (again, $2.73 per partner per day) return in value? In other words, how is that price repaid in:

Productivity gains: freeing up your attorneys, paralegals and support staff to do higher value work because their discovery workflow is more efficient; billing more for review work that may now be performed in-house.

Risk reduction: reducing reliance on physical media, outsourcing less work to third parties whose security protocols must be vetted, centralizing data in a secure location, more data redundancy, etc.

More client stickiness: creating deeper client relationships because the firm hosts the client’s data; and knows more about that data, where it is coming from, the legal exposure that data creates, and how it can be used to create strong legal arguments.

Better client value: passing on predictable fees that are in line with quoted estimates, bringing more of the legal team’s knowledge to bear because discovery is performed in-house by people with knowledge of the case, having more control over the process so as to avoid delays and missed deadlines, etc.

Higher quality of life: reducing the headaches that naturally arise from working with and managing third-party vendors, avoiding fire drills by asserting more control over workflow and process.

In the end, sheer cost must be considered within the context of those factors and others, including the firm’s satisfaction with the ability of its current technology and process to deliver those dividends. Smart law firms won’t balk at price if they understand the value they’re getting in return. The challenge is conveying that value in terms that resonate with the people signing on the dotted line.

To learn more about the hidden costs associated with building an on-premise eDiscovery solution internally, check out the whitepaper below.