How do you calculate the return your legal firm will get from investing in a document management system (DMS)? To help with the answer, this article explains how to calculate ROI using ‘hard cost’ savings.
The adoption of a Cloud-based document management system makes sense on several levels, but how can you prove that it’s to the firm’s advantage to invest in a DMS before you make that commitment? Typically, firms guesstimate non-billable time (soft costs) via a formula that might look like this:
15 minutes saved each day by 20 professionals at an average of US$300 per hour x 220 days = US$330k
This is a valid calculation, but it’s one that firms often view with some incredulity, partly because these are estimates of what a ROI could look like, rather than hard numbers. To offer an alternative view, this article is focused on using purely hard data.
The areas where you will save money by implementing a DMS are:
Going forward we expect to see not ‘the paperless office,’ but the ‘paper-light office’. ‘Print-to-read’ will be the primary reason for paper being used, as ‘print-to-file’ and ‘print-for-client’ will no longer be necessary.
Recent research indicates how the pandemic has changed attitudes to home working, with 7 per cent of workers wanting to return to the office, yet only 6 per cent wanting to do so on a full-time basis. The clear direction of travel is towards hybrid working. This may also lead firms to revisit their office leasing contracts and consider how these can be renegotiated with focus on right-sizing the space. But returning to the matter at hand, reducing the area of floor-space needed for paper storage can play into and make a useful contribution to the reconfiguration exercise.
Paper costs more than you might think, firms must also add the costs of the hardware used to print, copy and scan paper, as well as the cost of toner. Add to that the cost of products that support the use of paper such as pens, markers, staples and staplers, hole-punches and filing cabinets.
Based on trend data, it’s likely that firms can reduce their paper and associated costs by 25 per cent in year 1; by 50 per cent in year 2 and thereafter by 70 per cent from year three onward. Your accounting system can tell you what you’ve spent on paper and associated costs in the last year.
Most firms store paper in three ways: in near-at-hand office filing cabinets; in interim storage areas on site, which are often a secondary office or basement; and in offsite archives. All of this storage attracts a cost. A standard filing cabinet for example requires 12 square feet of floor-space.
“We added in additional benefits such as a reduction in paper and print costs. We also reviewed our property strategy, as many people have because of the pandemic, and part of this is to review and reduce our filing and therefore to reduce our footprint in terms of buildings and leases.” - John Turner, COO, Ellisons Solicitors
We’d expect onsite storage costs to be gradually reduced, reaching around a 50 per cent reduction by year three, and around 80 per cent by year seven as the digital file becomes the norm.
In addition, offsite archives will be wound down as the content ages, while typically onsite content goes offsite in year three. So firms should expect the costs of offsite storage to start falling from year four, although this can be accelerated if existing physical inventory is scanned into digital.
Finally, both hardware and software costs are reduced as Cloud-based DMSs don’t require in-house servers, storage, operating system and database licensing etc. We believe that firms will reduce their server leasing or server acquisition and upgrade costs by a factor of around 7 per cent. If the firm subscribes to file sharing utilities these won’t have to be renewed either. A new and additional cost, however, will be digital signature software.
“I thought this was a huge advantage, particularly in our situation. After all, as a boutique firm, we want to focus on the needs of our clients, not on provisioning servers. With NetDocuments, we don’t have to buy, house, or continually maintain an IT infrastructure. Plus, it provides the scalability we’re looking for.” - Dr Hubertus Stuttmann, Partner at LMPS Rechtsanwälte
It’s likely that tomorrow’s firms will look different to the way they did in the beginning of 2020. They will probably have a distributed workforce, connected to a digital headquarters, using the physical office space as required. This office will have no filing cabinets or interim storage, and there will be no off-site archive with a Cloud-based document management system as the central pillar of the digital HQ.
To make financial sense in the here and now, partners must first make good, data-driven decisions with hard, objective numbers about the real cost savings that a DMS adoption can bring. Our findings show that a mid-sized firm can look to save between US$400k and $600k over the first five years of DMS adoption.
To learn more about how much you can save by switching to a Cloud-based DMS, register to our webinar which breaks down the calculations, how your firm can save on hard costs, followed by a Q&A session for any of your document management ROI questions. To register to the webinar click here.
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