Multiply the number of in-house lawyers in your department by a presumed 1,800 chargeable hours per year. Other hours of work are administrative or CLE or of a kind that an outside lawyer would not bill. If a lawyer left or joined during the year, adjust the number to come closer to the equivalent of full-time lawyers during the year.
Divide the result of 1,800 times full-time equivalent lawyers (FTE) into the inside spend for the year, i.e., divide chargeable hours. That spending figure should include all the kinds of expenses that a law firm has to cover (except malpractice insurance). Thus, it should include all compensation-related costs to the company of the entire law department staff, even if some of the costs are not part of the law department’s budget. It should include a fair market facilities cost (the counterpart of rent) and all allocations or charges by the company for support, such as technology, finance or human resources (even if the department estimates what those charges should be).
The fully-loaded hourly cost – which should capture the total cost to the company of employing its lawyers – is what the lawyers would have to charge their clients for their equivalent of billable work to cover all the department’s costs.