Another law department benchmark: legal costs in terms of sales (profit margin)

Reading Freakonomics, the entertaining book by Steven Levitt and Stephen Dubner, it struck me that I have never seen the total cost of the legal function – inside plus outside spending – expressed in terms of a company’s profit margin. To know that in a low margin business like grocery stores, the chain must sell $1 billion worth of groceries to pay for its total legal costs, while a software company enjoying high profit margins with the same legal costs need sell only $240 million creates a new benchmark.

Stated differently and holding revenue constant, the same total legal spending drags down a lower margin company more than it does a higher margin company.