Your business might appear to be doing perfectly well. However, when looking further into its performance, is it doing as well as you expected? Things like missed milestones or bottlenecks aren’t always obvious. Neither is spotting the signs of a dodgy contract that could be harmful long term.
Using KPIs can help save money and time, and potentially allow you to control your contracts better. If data was compromised during a standard signing, what would you do? How would you deal with a troublesome contact when it’s too late?
In terms of companies focused on sales, perhaps the most vital metric to consider is how quickly sales are closed. CLM software can provide plentiful cost and time savings while helping improve revenue by reducing the time needed for contract execution.
As contracts pass through each stage, it’s also essential to be able to identify if a security breach has occurred. Often unexpected, this alone can be a costly experience.
Instead of Being Left to Function Independently, Contracts Should be Measured
Being aware of even the smallest changes in a contract can have the most significant impact over time. Therefore, businesses that don’t have adequate measures in place are likely to suffer. Information that is generated can also be used in broader decision making.
With this in mind, what is your current system achieving? Is it capable of measuring how long various departments or reviewers are taking with drafts and edits? Can it pinpoint contracts that resulted in significant business outcomes? Is it able to see how partners performed against their terms? Or capable of providing the next steps before contract expiry?
The best CLM systems can track KPIs such as these. But why are they so important? They help keep contracts specific, measurable, attainable, relevant, and time-based across any company.
- KPI 1: Time from Contract Start to FinishThe positive of this KPI is that it’s not complex to measure whatsoever and can also measure how quickly a deal is closed. Often the quicker a deal is completed, the more money generated. Of course, several different factors affect how quickly this happens. The type of agreement plays a big part, as well as contract scope, and the amount of involvement from stakeholders. A great CLM system should incorporate strong content authoring and review, libraries and clause templates, plus the ability to quickly compile and negotiate contract terms, regardless of locality or division.
- KPI 2: Delays with ApprovalWhile the first KPI works out how long the contract lasts from beginning to end, it’s equally useful to work out how long sub-cycles last. Working this out is incredibly helpful in the context of calculating how long various departments or people spend on drafting or editing. It’s particularly useful for sales directors, as the metric somewhat determines how contracts affect other areas of business performance. It’s also useful for workflow automation, where tasks can be assigned down individual paths and overall, the contract process becomes more visible.
- KPI 3: Patterns in Geography, Type or Other CharacteristicsInformation about geography or contract type is excellent because it allows executives to work out where bottlenecks are happening in the contract cycle. Other problems, such as those associated with organization structure or issues with the workforce can be monitored, regardless of the location or division, they occur in.
- KPI 4: Volume of ContentThis can be measured for customers, partners, programs, and locations. It’s useful as it allows for quicker evaluation of contract performance. However, it can also be used to understand better things like value drivers and growth, which is ideal for business planning. Data is useful for working out how many contracts occur in a specific region, or whether partners are conforming to their terms. Other metrics can also be gathered easily from dashboards, like profitability and contract revenue ratio.
- KPI 5: Contract Scoring and AssessmentAlthough it’s good to judge contracts based on quality, effectiveness is equally important. As companies become more complicated as they grow, their associated contracts may not equally scale. Therefore, businesses must look into things like clauses, terms and conditions, and amendments, making sure they are renewed or negotiated as necessary. It’s also useful to look at patterns by division or region as there might be substantial differences in terms between them. In other words, areas and divisions should be given autonomy, but contracts should always remain uniform and conform to specific standards, which is where scoring and performance monitoring comes in.
- KPI 6: Analysing Performance and Past TrendsLooking at past trends and current performance is essential for future plans, specifically, to ensure goals and objectives are met. It’s also useful for setting realistic growth plans, not to mention working out areas for possible improvement. Ultimately, the findings can be used to work out which contracts result in the most desirable outcomes and which partners are best.
- KPI 7: Performance of ObligationsThis has several benefits for organizations. It ensures all parties meet their associated milestones and that organizations make as much revenue as they can. The number of chargebacks, refunds, and disputes are also likely to be lowered in frequency. Missing milestones can be expensive, particularly if fines result. Plus, if obligations aren’t correctly measured, this can result in wasted money.
- KPI 8: Level of Difference in Terms for Standard ClausesSuppose you manage thousands of contracts in different places and divisions. In this case, it’s imperative to ensure parties conform with clauses, terms, and conditions set out there. If deviations occur, an effective CLM system will notify an administrator. This is also the case for changes in standard clauses which can have a significant impact on overall business performance.
- KPI 9: Number of Expiries Without RenewalAs contracts approach expiry, a decision has to be made as to whether to continue it or end the agreement. Automatic renewal can be made easier using a CLM with this functionality built-in. However, its use must be carefully considered. After all, once auto-renew has happened, there’s no going back! Calendar functions are particularly useful to plan the next best steps, whether this happens to be negotiation, termination, or amendments. Though, companies who are managing thousands of contracts can benefit from such functionality.
- KPI 10: Poor Signature Approval or Contract AuthorisationAs contracts eventually work towards approval, it’s essential to consider if a security breach could occur, specifically when signatures are being approved, or the deal is being authorized. Problematic contracts can have significant consequences for businesses, making it essential for companies to use some form of authorization. Doing this also ensures managers don’t overspend, and governance is complied with. Strategic decisions can be guided by controlling spending across divisions and by appropriate use of budget analysis. It doesn’t matter if an electronic or ink signature is made, an audit trail should exist so that an accurate approval process can be maintained. If a signature has been made fraudulently, and protection isn’t in place, there’s a risk of lost intellectual property, lawsuits, and possible damage to partner relationships.
If You don’t Make Use of KPIs Right Now, You Should do in the Future
As already mentioned, a CLM system makes things like tracking and reporting much more straightforward. After all, merely relying on spreadsheets can be a nightmare, and half the time, they might not even do what you need them to.
A CLM system, along with the right KPIs, will allow you to simplify the approvals process, save time and money, and build better relationships. Yet it is surprising just how many companies don’t realize these benefits, opting for manual systems still.
KPIs alone will help your organization make better decisions and inform you of what’s required in your contracting process. They will help you to get the most out of your existing systems as well.