As we approach 2025, general Counsels (GCs) across the United States are gearing up for another crucial budgeting season. To shed light on the evolving landscape of legal department budgeting, Axiom conducted a comprehensive study, surveying 200 GCs from companies with annual revenues of $250 million or more. This sneak peek of the results offers valuable insights into current practices, future trends, and the shifting priorities of legal departments. Let's dive into the key findings that are shaping the future of legal budgeting.
The Current State of Legal Budgeting
The study reveals that in 2024, legal departments primarily relied on three budgeting models:
- Zero-Based Budgeting (ZBB): This model, which requires justification for each expenditure by starting from zero each year, remains the most popular choice.
- Rolling/Continuous Budgeting: This approach involves ongoing evaluation and adjustment of the budget throughout the year.
- Precedent-Based Budgeting (PBB): This method uses the previous year's budget as a foundation, making incremental changes as needed.
While zero-based budgeting has been the go-to model for many years, recent global events and market fluctuations have prompted GCs to reconsider their approach. The need for greater agility in an increasingly unpredictable business environment is driving a significant shift in budgeting strategies.
Last year, Elizabeth Miller, former Head of Legal Operations at Margeta, Dolby, and Boston Scientific shared the benefits and pitfalls of ZBB vs. PBB with Zach Abramowitz of Killer Whale Strategies in an Axiom webinar.
She noted that ZBB scrutinizes all costs for true need and surfaces opportunities to improve efficiency while aligning budgets to the evolving landscape. But at what cost? It not only is labor intensive but also subjects the department to the risk of overcorrecting and underbudgeting key areas. As for PBB, she couldn’t deny that it simplifies a laborious process and avoids reinventing the wheel each year, but the pitfalls were much greater: this approach assumes all current costs are still required without reexamination and entrenches inefficiencies.
She concluded that “everybody should be looking at a mix of these two models,” or in other words, utilizing a rolling/continuous budget model. And it seems they are.
The Winds of Change: 2025 Budgeting Model Shift
One of the most striking findings from the study is the widespread consideration of change in budgeting models:
- 61% of GCs are considering a shift in their legal budgeting models
- 42% are actively planning such a shift for 2025
- 35% have already made the shift
The top three reasons driving this change are:
- Emphasis on agility and responsiveness (39%)
- Regulatory or compliance requirements (38%)
- The evolution of legal operations (33%)
This shift signifies a growing recognition among legal leaders that traditional budgeting models may not be sufficient to navigate the complex and rapidly changing legal landscape of the future. Just as Miller predicted.
Budget Trends: A Gradual Upswing
After a period of widespread budget cuts, the study brings good news for legal departments:
- 55% of GCs reported a budget increase in 2024, with an average increase of 4%
- Only 10% saw a decrease, while 36% reported no change
- Looking ahead to 2025, 61% of GCs expect their budgets to increase again, projecting another average increase of 4%
This trend suggests a recovering economy and a growing appreciation for the strategic value that legal departments bring to their organizations. This increase in budget could also be both a result of changing priorities and a benefit of those changes, as the study revealed that legal technology, legal operations, and in-house staff salaries are major buckets for the rest of this year. But while technology and in-house staff remain the focus for 2025, GCs reported a shift in financial support to leveraging flexible legal talent providers, virtual law firms, and/or alternative service providers.
Charting the Course Ahead
As we look towards 2025, download the full report of the study to learn what else is impacting the rapidly evolving in-house landscape. You’ll learn why GCs are moving away from traditional models and embracing more dynamic approaches, including five key takeaways you can apply to your own 2025 budgets.
By embracing these trends and insights, legal leaders can position their departments for success in an increasingly complex and fast-paced business environment. As we move into 2025 and beyond, the most successful legal departments will be those that can adapt quickly, leverage technology effectively, and align their resources strategically with organizational goals. Download the full report today!