Contract Metrics That Should Matter to Sales
The purpose of any contract lifecycle management software (CLM) is to improve coordination between departments as a contract passes between them during negotiations, drafting, redlining, signing, and execution. The goal of CLM metrics analysis is to locate where workflow is slow and fast so that the business can focus its efforts on bringing the lagging areas up to speed.
Contract metrics for sales are no different. There can be communication lags within contract management between sales and legal, so having a good knowledge of certain metrics common to both departments can be a boon to the sales manager. In the case of contracts, there are certain areas where both legal and sales are involved, and these areas are prone to friction and slowdowns.
Contract turnaround time
From initial sales contact to the final signing, time is critical to determining quarterly and annual sales figures. At the same time, it can be the area most difficult to manage since different companies often have their own CLM and their own documents, no matter how much boilerplate language is used.
In one case, a national HR software solutions company assessed their contract management software needs and discovered several bottlenecks in their contract turnaround time.
- A single approval hub for non-negotiated contracts: All regional offices had to send sales contracts through the main office.
- Multiple form uploads and downloads through different platforms: Using several different software platforms meant time wasted every time a contract was edited.
- Wait time: The contracts spent the majority of the time in Legal, preventing action in the sales department.
Determining the location and nature of the delay helped them focus on the best course of action to fix the bottleneck. In this case, it was replacing the regional hub with a self-service system. Thanks to their use of CLM, which tracked the amount of time needed for the uploads and downloads, the company could spot where the slowdown occurred. It turned out that the central hub, which had seemed to be a good idea, was not as helpful as they had hoped.
Knowing how long the contracts take to close is important in locating problem areas and helps determine high-and-low-performing areas. If a contract sits on a principal’s desk for weeks, that is beyond the sales staff’s control; if the contract can be routed to another office to get faster results, this can be discovered by analyzing the email patterns.
Corrections and redlining
Redlining a contract is the process of editing and amending an agreement until both parties are satisfied with the conditions and terms. “Redlining” refers to the old-time system in which red pens were used to write on the black-printed paper contract. Today, red is still the conventional color of corrections to a contract.
Redlining is carried out today via word processing software and CLM. The advantage of computer editing is that corrections can be made immediately, sometimes while parties discuss them. This means that all parties will have current, accurate copies of the agreement and can question inaccurate or unclear terms. Also, last-minute changes are possible if circumstances require a quick update.
The downside of computer redlining is that the ease and immediacy make it tempting to keep fixing and tweaking a contract until there are dozens of versions. If the various parties use different CLM or other management systems and are not careful, it can become difficult to determine who has the most recent version of which contract.
There are ways to prevent these potential difficulties.
- In-person negotiations: Formerly, contracts were written by both parties in one room. Today, the same thing can be accomplished via Zoom or other teleconferences. Even with this technology, it’s not always possible.
- Cloud-based software: By saving to the cloud so that all parties can access the same document, they can ensure that only one copy is being edited.
- Boilerplate language: Statutory language can be downloaded directly from a jurisdiction’s website or a court judicial forms site, ensuring compliance with local rules.
- Clickwrap: A standard feature in online transactions, clickwrap agreements are beneficial to non-negotiated sales contracts where all parties agree with the terms and conditions, and all that is needed is a signature.
By tracking the amount of redlining in the sales department and reviewing what areas are carrying out unnecessary or redundant exchanges, sales departments can switch to another, less time-consuming method of editing and signing contracts.
Review and approval
Contract value can be calculated by the amount of money the contract will bring in divided by the total person-hours spent on the contract overall. In other words, the longer each step takes before the actual signing of the contract, the less value is actually received from the contract, despite the number on the bottom line.
This can come as a surprise to some contract sales managers, who are accustomed to thinking of pre-signing costs as overhead. But the longer it takes to review a contract, and the more it is sent back and forth through various departments, the less net value it has for your company.
The biggest bottleneck in the review and approval process comes as parties negotiate via computer or email and waste time wondering which is the most current version of the agreement. By focusing on lost time in this area, time can be freed up for more time-intensive areas, such as sales. When assessing the company’s processes for contracting, the review and approval process should consider how effectively they are using their time.
Using performance indicators
Locating the specific areas where contract negotiation and drafting are least efficient can be a daunting task and will vary depending upon the type of contract used and the type of business using it. CLM metrics provide a number of different metrics to evaluate a business’s performance and locate areas of strength and weakness.
Process metrics measure the business’s performance over a period of time or during a specific operation. Process metrics analyze the workflow and determine how contracts are moving through the pipeline from sales through legal to the approval desk:
- Totals: how many contracts have been generated by the business during the period.
- Completed: how many contracts have made it through the process from start to finish.
- Active: a critical number, indicates how many contracts are stuck in the pipeline.
The process metrics show the workflow in action and provide the means for a business to spot which contracts are not moving and where they keep getting caught. Once that has been determined, the business can address what is causing these workflow backups and devise methods to manage them.
For instance, if the process metrics determine the majority of contracts stall in the final review stage due to one person lacking time to review them properly, then solutions might include granting review ability to more people or staggering the review process, so fewer contracts reach that person on any given day.
Efficiency metrics assess the time a contract takes to move through the workflow process. Combined with the process metric, this enables a business to see where an efficiency blockage is occurring.
Typically, an efficiency analysis breaks down the number of days required for generating, reviewing, negotiating, and executing a contract. Typically, an efficiency analysis breaks down the number of days required for generating, reviewing, negotiating, and executing a contract. If one segment, such as negotiation, consistently requires more time, the business can adjust its negotiation techniques accordingly.
If the generation portion is slowing down the process, then an alternative method of drafting and redlining contracts may need to be found, one that allows a more efficient form of contract design.
Performance metrics begin measurement when the contract is operative. These measurements look at the value of the contract in revenue, fraud prevention, and revenue protection. Performance metrics aim to analyze how the contract will operate and correct any errors before execution:
- Annual value: Averages the worth of a contract over a year. This allows a business to compare and contrast various contracts for profitability and revenue generation.
- Terminated contract value: Assesses the outstanding balance on service contracts. This is beneficial in preventing lost revenue from past due accounts.
- Vendor fraud metrics: Analyze vendor input and help avoid security breaches, improper billing, and unnecessary spending.
These metrics enable a business to evaluate a contract’s terms and conditions once the contract has been executed. A company can then make corrections before the contract is signed to avoid any later problems.
By bringing in Ironclad’s CLM and integrated contract creation and analysis platforms, your business can quickly and easily create the types of contracts needed to improve timelines and overcome whatever roadblocks may be slowing down your sales.
Our Process Metrics Reporting tool extracts the information generated by the Workflow Designer and enables both legal and sales to present the information clearly. By tracking dates, errors, and other input, the Workflow Designer handles sales metrics in the most efficient manner needed by your sales and legal teams.