Once the first contract is signed or the first patent is filed, many growing business COOs, CFOs and CEOs turn their attention to developing a legal risk management strategy, and it’s easy to see why. There are lots of tricky legal issues that growing businesses have to contend with, such as employment, visas, letters of intent and more. Some executives respond to these legal challenges by hiring in-house counsel.

Unfortunately, what many executives fail to realize is that hiring in-house counsel only makes financial and logistical sense if you have a certain volume and type of legal work. Most businesses operate for years before crossing this threshold. Before that point, it’s often better to look for less expensive outsourcing alternatives and focus your internal staff on managing those outside resources.

Hiring in-house counsel only makes financial and logistical sense if you have a certain volume and type of legal work.

However, for every successful company, there will come a time when hiring a GC does make sense. There are two ways to tell if your company is truly ready to hire in-house counsel, and following these guidelines could save your business a lot money down the road.

1.) When It’s Cost Effective

Although it’s obvious that you should only hire a GC when doing so is cheaper than relying on outside counsel, figuring out which option costs more can be harder than you think. In fact, you’ll have to break out your calculator and do some math.

Once you factor in salary, benefits and other expenses like office space, hiring in-house counsel could easily cost your business $200,000 per year or more. That means that working with a GC is economical only if doing so saves you that much or more annually in outside legal fees.

There are two factors that determine whether or not hiring a GC will actually save you $200,000 on outside law firms. 

Until you have so much legal work that paying a law firm to handle it all is more expensive than hiring a GC, you should continue to rely on outside counsel.

Amount of Legal Work

The rate of your law firm will determine exactly how much legal work your business should generate before you hire a GC, but the basic rule is this: Until you have so much legal work that paying a law firm to handle it all is more expensive than hiring a GC, you should continue to rely on outside counsel.

Attorneys range in price from an average of $727 per hour for senior partners at big law firms to an average of $343 per hour for partners at smaller firms. Some prestigious law firms charge as much as $1,500 per hour. If your law firm is on the high end of the spectrum and charges $1,000 per hour, your business would need to have 200 hours of legal work each year to justify a GC’s $200,000 price tag. However, if your law firm charges just $200 per hour, your company should have 1000 hours of legal work per year to benefit financially from hiring a GC. That’s nearly 20 hours of legal work each week.

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Type of Legal Work

Those numbers come with an extremely important caveat, which is that all of that legal work must be in closely related areas. If your company’s legal matters run the gamut from employment and IP to real estate and immigration, there’s no way that any one attorney could have the necessary amount of knowledge in all of those legal areas.

That means that on top of $200,000 you’ll be spending on your GC, you’ll still be paying outside law firms to handle the work that your GC can’t. So unless you’re confident that your business has 1000 hours of legal work per week and that one attorney could reasonably handle all of it, you’re better off without in-house counsel. 

On top of $200,000 you’ll be spending on your GC, you’ll still be paying outside law firms to handle the work that is outside your GC’s practice area.

This same logic also applies to expanding your in-house legal department. If you already have one GC who saves you from having to send 1000 hours of work to a law firm, think carefully about hiring a second or third. For every new attorney you bring on, you should have an additional 1000 hours of legal work that your new hire could handle without any help from outside providers.

For example, a two-person legal department only makes sense if those two attorneys handle 2000 hours of legal work annually by themselves, and a three-person legal department only makes sense if those three attorneys handle 3000 hours of legal work annually by themselves. If that’s not the case, you’re better off supplementing your existing legal team with outside counsel.

2.) You Need a Project Manager

Even if you don’t have enough legal work to justify hiring a GC, doing so might still make sense from a project management perspective. If executives at your company are finding it too difficult to attend to their principal responsibilities while simultaneously managing all the relationships your company has with outside counsel, hiring in-house counsel could be a good move. Rather than becoming a workhorse who personally handles all of your legal tasks, your in-house attorney will ensure that all of the law firms your business works with are capable and cost-effective.

However, it’s also worth noting that project management software can make it easier for executives to act as project managers, thereby delaying the point at which you need an in-house lawyer to fill that role.

Your in-house attorney will ensure that all of the law firms your business works with are capable and cost-effective.

Your Alternatives

If you’ve determined that your business isn’t quite ready to hire a GC or expand your in-house department, there are several other ways for you to get the legal help you need at an affordable price. Relying on one of these alternatives will ensure that you only pay for legal advice when you need it, and that whoever you’re paying will have the right amount of experience to capably handle your matter.

1.) Legal Marketplaces

Legal marketplaces are online services that allow you to broadcast your legal need out to dozens, hundreds, or thousands of attorneys. Within a few days, you’ll receive offers from qualified attorneys who are interested in your project. This can duplicate the full coverage of an expensive law firm at much lower rates.

After looking over each attorney’s profile, rates and experience, you can hire whichever one seems best for your business with the click of a button. Most legal marketplaces even include features that facilitate your legal project, like messaging, billing tools and more. Whether you’re looking to hire an attorney for a one-time need or on an ongoing basis, legal marketplaces are an efficient and cost-effective way to find the attorney who’s right for you. 

Legal marketplaces can duplicate the full coverage of an expensive law firm at much lower rates.

2.) Legal Tech

Although no technology can ever replace a qualified lawyer, there are lots of amazing tools out there to help you with project management. Whether you’re looking for a more organized way to manage contracts or track the progress of a legal project, legal tech can be a great way for you to streamline your process. This means that your executives might be able to put off hiring a GC for project management until doing so is also economically beneficial.

3.) Low Cost Providers

Although big law firms often bill at outrageously expensive rates, smaller law firms typically offer their services at much more affordable prices. You might have to do some research to find a firm whose associates have the experience, knowledge, and personality that you’re looking for, but putting in the extra work is far preferable to spending big bucks on a GC or big law firms.

About the author

Aviva Schmitz

Aviva Schmitz

Aviva is a content marketing intern at UpCounsel and student at Tufts University in Medford, Massachusetts. She has served as an editor and contributing writer for publications such as The Culture Trip, the Tufts Daily, and satirical magazine The Zamboni.

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