Contract Lifecycle Management (CLM) has emerged as a pivotal process for managing, analyzing, and executing contract creation. The adoption of CLM practices gained momentum in 2018, and its significance has only amplified in the post-pandemic world. As businesses increasingly invest in contract management, it lays the foundation for growth and drives operational efficiency across various sectors.
But what are the benefits of this technology, and how can organizations define Contract Lifecycle Management Key Performance Indicators (KPIs)?
The answers lie in the numbers
- The average cost of a simple contract is estimated to be $6,900 by World Commerce and Contracting.
- Analysts at PricewaterhouseCoopers suggest that businesses can save up to 2% of their annual costs by leveraging contract management, thereby avoiding inaccuracies and non-compliance.
- Goldman Sachs estimates that automating contract management can accelerate negotiation cycles by 50%, reduce erroneous payments by 75 to 90%, and cut operating and processing costs related to contract management by 10-30%.
These statistics underscore the profound impact of CLM on businesses’ everyday operations. Consider these insights:
- 70-80% of business operations are governed by contracts.
- 46 cents out of every $1 spent on legal services goes towards external costs.
- 37% of companies spent more than $750k on legal technology in 2018.
- The average legal technology spend for mid-size companies with in-house engineering resources was $1M in 2018.
Moreover, poor contract management practices can have significant repercussions:
- The cost of poor contract management practices is estimated to be 9% of annual revenue by World Commerce and Contracting.
- Up to 40% of a contract’s value can be lost without close contract governance, according to a KPMG Survey.
Fortunately, there are ways to mitigate these risks and enhance Contract Lifecycle Management KPIs. For instance, platforms like AXDRAFT can automate drafting processes, saving up to 70% of lawyers’ time and reducing average contract costs significantly.
Beyond the numbers, CLM software offers several tangible benefits
CLM software sifts through contract histories to find reusable standard language, facilitating rapid contract drafting. By automating this process, contracts can be created in minutes, identifying necessary team members and addressing past issues efficiently.
After preparation, CLM solutions enable the rapid drafting of contracts using dynamic templates. This reduces the time and effort required to create contracts, allowing legal teams to focus on higher-value tasks. CLM software ensures version control during negotiations, saving time and preventing errors. By enabling collaboration and providing easy access to contracts, it streamlines the approval process and expedites deal closures. CLM platforms organize contracts in secure cloud storage, ensuring easy access and compliance with audit requirements. They also provide reminders for deadlines and guide users to the documents that need revision.
CLM software offers analytics tools to measure contract performance, tracking metrics like deal size, renewal rates, proposal volume, lead conversion rates, and sales cycles. This data-driven approach helps organizations optimize their contract management processes and achieve better outcomes.
Despite the clear benefits, adoption rates of advanced CLM technologies remain relatively low. Legacy mindsets, concerns about job security, and resource constraints are some of the factors hindering widespread adoption.
In conclusion, Contract Lifecycle Management offers substantial benefits to organizations, ranging from cost savings and operational efficiency to improved risk management and compliance. By embracing CLM technologies and defining relevant KPIs, businesses can unlock new opportunities for growth and success in an increasingly competitive landscape.
