Important Contract Lifecycle Management Metrics to Track
Contracts are tightly woven into all teams within an organization — they’re all involved in legal processing at one stage or another. But your company can’t determine its progress and the value contracts are adding to it without focusing on contract lifecycle management (CLM) metrics.
They’re otherwise known as key performance indicators (KPIs), which measure the performance of a business over time.
Types of CLM metrics to know
CLM metrics consist of three categories: process metrics, efficiency metrics, and performance metrics.
Process metrics are standardized measurements that evaluate a business’s performance. They provide you with both quantitative and qualitative analysis of a specific operation. By assessing process metrics, your company can determine which areas need improvement to optimize performance.
Below are some general process metrics that most businesses use to track performance:
- The number of workflows launched indicates how many new contracts the organization has generated. This will show the number of new customers coming in and the agreements they want to make with your company.
- The number of completed workflows determines how many contracts have gone through all the required stages and received approval. You can check how well your company is doing by measuring completed workflows.
- Active workflows indicate the contracts stuck in the process. They’ll help you find the obstacles that are preventing contracts from making progress. Your organization can then come up with strategies to improve the efficacy of the involved teams, providing ample resources to remove any hurdles and complete the contract process.
- The error rate is also known as the defect rate or the failure rate. It indicates the number of errors found within your documents throughout the contract lifecycle. The error rate is recorded as a percentage. After determining this CLM metric, the organization corrects its methods to avoid mistakes in the future.
- Productivity indicators determine the ratio of successful outputs produced by the company and the resources used to do it. Increasing a company’s productivity means smartly using resources to produce maximum output and bring in a high profit margin.
Even though efficiency metrics seem challenging to track, they’re crucial to track the performance of CLM solutions.
One aspect of efficiency metrics is measuring the contract lifecycle time from the moment it’s generated to its signing. The faster the agreement approval process is, the faster the transaction process. Revenue starts coming in sooner, and the profit margin increases. When organizations avoid spending too long in the approval process, they save time during contract workflows. The focus should be on strategizing.
Efficiency CLM metrics also include the turnaround time of workflows and the average number of days required to execute, review, and negotiate. They focus on the strategic monitoring of company employees. Optimization is done after evaluating the efficiency KPIs.
Performance metrics measure the efficacy of contracts in several ways.
- The annual contract value is a metric that indicates the worth of an ongoing contract by averaging and normalizing its value over a year. You can compare different types of customer contracts and see which ones bring in the most revenue.
- Terminated contract remaining value helps prevent lost revenue. It will give you information about all outstanding bills, credits, and similar matters. This metric is convenient for service contracts.
- A performance metric that detects fraudulent activity and unnecessary spending helps businesses prevent security breaches. Vendor fraud best describes this metric.
- By measuring the order value variance, your business can determine which areas need additional resources to improve its performance. Errors are detected during the review process and optimized accordingly.
The role of CLM metrics in business
All the contract lifecycle management metrics discussed above help businesses in several ways.
Ironclad’s General Counsel reports that using process metrics has helped her oversee the hiring process within the organization. Overseeing the efficiency of her teams and whether the workload is manageable or not requires less effort. She’s able to make informed decisions to allocate work and resources appropriately or hire more employees to distribute the workload.
CLM metrics help detect the areas in a business that require improvements. They enable you to study whatever hurdles contracts face in every stage of the lifecycle. Therefore, your company can come up with strategies to overcome these problems and make more progress.
An example is L’Oreal, a multinational cosmetics company that was having trouble with hiring new brand ambassadors swiftly and efficiently. Due to the overload of contracts, the company turned to digital contracting for help.
Efficiency metrics can fix communication issues among teams in an organization. When all groups are equally involved in contract workflows, teamwork improves and leads to better output flows.
These key performance indicators provide a bias-free environment for organizations to make decisions about their workflows. Since the data is all evidence-based, chances of prejudices are reduced considerably.
CLM metrics also aid in mitigating risks. It’s necessary to track every aspect of contract processes. If teams miss out on crucial contractual phases like negotiations or approvals, financial losses may occur. Process metrics reduce the possibility of such issues arising.
Deciding on the right metrics
So how do businesses choose which CLM metrics to track?
Since every business is unique, choosing the proper metrics to track depends on its needs. If the goal of a company is to bring in more revenue, it will focus on financial metrics. If a brand wants to bring in more social media influencers, it will track efficiency and performance metrics.
Tracking contract data depends upon your organization’s goals and requirements. Your Legal teams will help you determine what metrics to opt for after thorough research and review.
The role of Legal in tracking CLM metrics
Today, legal teams aren’t restricted to contractual work only. They’re key members of organizations and play a major role in how well a business is doing. They also help companies reach new heights through effective contract management.
The formation of creative strategies becomes possible by tracking CLM metrics. This drives businesses toward growth and increased revenues.
However, tracking CLM metrics efficiently means having the proper resources to do so. Legal teams are often underfunded and overlooked across organizations. Instead of choosing modern software to track metrics, businesses depend on manual paperwork. This is time-consuming and leads to Legal spending less time on strategic planning that will help companies to grow.
The lack of technology and automation leads to a slower legal turnaround and reduces efficiency. This problem is evident especially today since remote work has become such a big part of every organization globally.
Even though there’s no doubt about the centrality of contracts within an organization, they’re still often seen as burdensome tasks instead of opportunities to upscale business. Here are some Ironclad features that will help you track CLM metrics within your organization:
- The Process Metrics Reporting tool gives businesses instant access to a variety of metrics to track. You can generate reports about your metrics and share them easily with other teams. The concise reports give you insight into the efficiency and sticking points of all operations. Your business can prioritize valuable contracts and develop strategies to remove hurdles from the process.
- Automating the contract lifecycle process and creating repeatable workflows via the Workflow Designer helps Legal prioritize contracts. The focus will shift from lengthy paperwork to strategizing and risk management. Generating workflows will be less time-consuming and therefore reduce the need for external resources. This means fewer expenses and higher team efficiency across the organization.
- Storing contract data adeptly ensures its easy accessibility and security. The Dynamic Data Repository enables you to store all your data in one place and access it within seconds. Plus, the information stored is visible to all teams, so it increases transparency throughout the organization. Sophisticated security tools within the Dynamic Data Repository prevent unwanted privacy breaches.
- The Clickwrap feature plays a huge role in generating online agreements between parties. Setting terms and conditions and getting approvals becomes much more straightforward. This means less time spent on unnecessary emails just for a signature. Clickwrap can improve efficiency metrics within a contract lifecycle.
Simplifying contract management
Tracking contract lifecycle management metrics holds great promise for businesses. After all, how will you make improvements for your organization without measuring its performance?
Luckily, automated tools help navigate this complex process. Tracking process performance metrics and optimizing them for business growth is now simpler. Automated contract management tools finally give Legal a chance to participate actively in creating progressive strategies for the company.