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Contract Management Blog

3 Not So Obvious Contract Management Datapoints Every General Counsel Should be Tracking

Words and language may be the tools of the trade for General Counsels, however, there is often tremendous untapped value to be realized by monitoring and tracking the numbers related to their work.

For example, Contract management approval tasks often consume substantial amounts of time every day from Legal and business teams. With contracts serving as the foundation for most organizations, gaining better insight and control over contract lifecycle management in your business can lead to improvements not just in Legal, but in every discipline including sales, operations, finance, procurement, and more.

This article will introduce three metrics and datapoints that high performing General Counsels and legal teams should consider tracking, not only to improve contract and operational performance, but to assess and document the value they themselves deliver to the business.

1. Cost per contract

It is both understandable and surprising when we begin working with customers and discover they are not tracking how much it costs for them to create, negotiate, and process their most common types of contracts.

It is understandable because there are a lot of variables that factor into the cost of a contract, which makes it difficult and time consuming to track from start to finish—especially if you do not have a dedicated contract management solution.

It is surprising because processing contracts is an expensive endeavor and making the process more efficient, even by a few percentage points, can lead to a dramatic reduction in expenses, depending on how many contracts you process annually. Consider the following datapoints from World Commerce and Contracting:

  • The average cost to businesses of processing and reviewing a basic everyday contract is only rising.
  • A recent study, based on analysis of more than 700 organizations, found that business spend on a standard, low risk procurement contract from draft, negotiation, to signature, has increased 38% in the past six years, to an average of $6,900.
  • Costs for a mid-complexity contract, stands at $21,300
  • High complexity contracts run into hundreds of thousands of dollars.
  • The study also states that the world’s most efficient businesses have cut around one-third of the cost on contracts when compared to the average corporation.

As General Counsel, you are pulled in so many directions and while intellectually you can appreciate the cost per contract, you don't have time to practically assess and track it. However, what happens when the cost per contract impacts you directly as well as the perception of the entire legal department's support for processing contracts?

Even for mid-sized companies, tracking and then streamlining the contract management process can lead to significant cost savings for those processing large numbers of contracts each year.

 2. Average time per step in the process

For those familiar with contract management topics, you may be familiar with the term contract cycle time. The definition can vary depending on who you are referencing but typically contract cycle time refers to the time it takes to process a contract from the moment of initiation or requested until the time it is executed. While this measurement may provide some general indication your process is or is not efficient, it does not tell you how to improve it. That is why it’s important to dig into the details further by analyzing each step in the process.

To illustrate this point, assume your pre-execution process for a sales contract includes 5 steps once a contract is requested by the salesperson. Observing and documenting the outcome of each step over a period of time—merely capturing the average time to completion and the frequency of deviations—would provide some actionable insights into 1. the percentage of time your process is being followed as intended, and 2. which step(s) are being completed within the allotted time and which ones are taking longer than expected.

Many more datapoints can be tracked and observed, but even this basic approach provides a roadmap to where you should focus your efforts to remove bottlenecks and streamline the end-to-end process.


3. Time to first draft

It is probably obvious to most readers but to ensure we are all on the same page, the ‘time to first draft’ refers to the time it takes to deliver a first draft of a contract back to the person who requested it. This measurement can easily be considered a subset of the previous topic but due to its particular significance in sales processes, I have called it out on its own. For General Counsels, it is ideal for this metric to be part of the array of SLA’s that feed into the overall plans for business optimization.

For those readers not familiar with how sales teams operate, most of them are responsible for achieving bookings or revenue goals on a weekly, monthly, or quarterly basis. Saving as little as a handful of hours at any stage of the sales process can mean the difference of achieving the goal, or not. The urgency to close deals as efficiently as possible applies to companies of all shapes and sizes—for small companies it could determine if you make payroll for the month, for public companies, it can mean the difference of reporting on-target earnings or something below market expectations.

At this point, you may be asking yourself why measuring and tracking the time it takes to deliver the first draft of a contract is so important to achieving sales goals. One scenario we hear frequently from our customers is that at some stage in most sales engagements the prospect or customer says, “let’s conduct business, please send me a contract”. From that point forward, every minute the salesperson spends dealing with a complex contract request process or waiting for legal to draft and send them the contract is most likely pushing out the actual execution date of the agreement, and the close of the sale. From this perspective, you can see where tracking (and reducing) the time it takes to supply a first draft contract is critical to closing sales and achieving challenging weekly, monthly, and quarterly objectives.

Another important aspect to consider is that the longer it takes to finalize a deal, there is an ever-increasing chance that something will go wrong that prevents it from closing. Changing market conditions, a key executive is hired and needs to weigh in on the decision, a bad earnings report are all common situations that derail sales that once seemed destined to close. This is a reason why contract management solutions with automated document assembly are popular.


Summary

There are nearly unlimited datapoints to track and analyze for purposes of improving your contract management performance. In our experience, the ones mentioned above are universal in their value to all but the smallest businesses.

Good luck!


 

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