Contract Lifecycle Management metrics

Understanding the Significance of Contract Management Metrics in 2024

For legal teams, the shift towards becoming data-driven is a significant one as it lays the groundwork for contributing measurable business value. In this blog, we will delve into the reasons why tracking crucial Contract Lifecycle Management (CLM) metrics is essential. These metrics not only provide the insights necessary to enhance efficiency, mitigate risks, and ultimately drive better contract outcomes but also offer a competitive edge in the increasingly data-driven legal landscape.

What exactly do we mean when we talk about contract management metrics?

CLM metrics are parameters that organizations use to measure the success of their contracting processes. These metrics not only provide valuable insights into performance and pinpoint areas for improvement, but they also empower legal teams by establishing stakeholders’ expectations regarding contract management. Tracking these metrics not only enables legal teams to demonstrate their value within the business but also gives them the confidence to identify possible collaboration with other departments, instilling a sense of control and empowerment.

Key metrics to monitor for success in 2024

Turnaround time

Turnaround time is a critical contract management metric as it directly influences efficiency and responsiveness. By tracking response times, such as when a contract request is submitted versus when final approval is received, legal teams can address common complaints about delays. Implementing a workflow where key timestamps are logged can significantly enhance visibility and accountability.

  To track turnaround time effectively,
  • Legal teams should log key timestamps at each stage of the contract lifecycle.
  • By using a CLM system that automates these timestamps and generates reports on average turnaround times, teams can gain valuable insights into their efficiency.

Contract value

Tracking contract value is crucial for understanding financial implications and risk. Legal and finance teams should ensure that contract value is a mandatory field in all contract templates, allowing for accurate tracking in the CLM system. This practice not only enables real-time reporting and insights into contract performance based on parameters like risk and value but also instills a sense of security and control, making legal and finance teams feel more informed and in control about the financial aspects of their contracts.

Measuring contract value should involve
  • Consistent entry of values into CLM systems, ensuring all relevant parties have access to this information.
  • Regular reviews and updates of contract values should be integrated into the team’s processes to maintain accuracy.

Contractual obligations

Tracking contractual obligations is essential for maintaining compliance and managing risks effectively. Legal teams can set up automated reminders for critical deliverables and compliance requirements using CLM tools, ensuring that all parties remain accountable throughout the contract lifecycle.

Legal teams should prioritize
  • Tracking obligations using milestone reminders and automated notifications in CLM systems.
  • By tagging obligations by priority, teams can focus on the most critical compliance requirements and ensure timely fulfillment.

Contract deviations

Monitoring contract deviations allows teams to identify potential risks and improve negotiation efficiency. By implementing pre-approved clause libraries within the CLM system, legal teams can flag modifications and analyze these deviations by their type, enabling them to standardize terms and mitigate risks more effectively.

To capture deviations effectively
  • Teams should maintain a deviation log in their CLM system.
  • This log should have all the details of the nature of each deviation, allowing legal teams to identify trends and refine contract templates accordingly.

Contract renewals

Contract renewal metrics are crucial for maintaining long-term relationships between clients and suppliers, especially in SaaS contract management. By tracking the number of contracts that are successfully renewed, legal teams can gain insights into client retention and focus on maintaining these relationships for long-term success, fostering a sense of dedication and focus.

What we track in this:
  • Renewal Rates: Tracking the number of contracts that are successfully renewed provides insights into client retention.
  • Expansion Opportunities: Identifying contracts that have been expanded can highlight growth potential within existing relationships.
  • Auto-Renewal Success Rates: Tracking how well auto-renewals perform helps identify areas for improvement in the renewal process.
Evaluating both successful and unsuccessful renewals offers valuable lessons for future negotiations and client management strategies.

Contract volume

Tracking contract volume provides valuable insights into resource management and organizational growth. By recording the total number of contracts processed each month and segmenting this data by department or client, legal teams can identify trends and allocate resources more efficiently.

Contract volume can be tracked:
  • By recording the total number of contracts processed within specific periods.
  • Legal teams should segment this data by department and client to identify patterns and ensure resource allocation aligns with demand.

Cost efficiency

Cost per transaction is a critical metric for assessing the efficiency of contract processes. Legal teams can calculate this by considering internal staff hours, external fees, and technology costs associated with contract management. A CLM system can assist by providing detailed reporting on these costs, facilitating better resource allocation.

To calculate cost per transaction accurately:
  • Legal teams should consider all associated costs, including personnel and external expenses.
  • It can be streamlined using a CLM system that tracks these elements and generates comprehensive reports.

Readability and accessibility

Contract readability is essential for minimizing negotiation times and ensuring all stakeholders understand the terms. Legal teams can assess readability using metrics like the Flesch-Kincaid score and should aim to simplify language to make contracts more accessible, thereby improving communication and reducing misunderstandings.

Legal teams can use tools like:
  • Readability score analyzers to assess and improve contract language.
  • It simplifies language and reduces jargon to become effective in enhancing readability, making contracts more transparent for all stakeholders.

Tracking essential contract management metrics has become a must for legal teams looking to thrive in our data-driven world. By monitoring key CLM indicators like turnaround times, contract value, compliance risk management, and resource allocation, businesses can gain valuable insights to increase efficiency, mitigate risks, and drive better contract outcomes. These practices allow legal teams to collaborate more efficiently with other departments, streamline processes, and align themselves with organizational strategic objectives, ultimately setting the foundation for long-term success.

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