Aligning Contract Management with Sales Processes
A study by the Aberdeen Group found that, on average, respondents’ revenue that involves contracts is projected to rise from 56 percent to 68 percent within the next two years. Aberdeen points out that this increase can result in a competitive advantage for enterprises that focus on growing contract sales and making the contracting process more efficient.
“In an economy where product margins continue to dry up, best-in-class service organizations are finding that warranties and service contracts can be a fruitful avenue to drive increased revenue streams,” concludes Aberdeen analysts Aly Pinder Jr. and Sumair Dutta.
Yet many enterprises are not positioned to maximize contract revenue because they do not have a contract management system that aligns contract management with the sales process. This failure of integration leads to bottlenecks and missed opportunities that hamper revenue growth.
Contract management software, whether hosted internally or on the cloud, can provide vital assistance in achieving the necessary alignment. One of the most important ways in which it can do this is by tracking what works and what doesn’t. This constant monitoring is critical to making the right adjustments to most-efficiently capture revenue. It also can provide a cost-justification for the software.
Here are some measurements that should be routinely performed as part of contract management software implementation.
Benefit of Reducing the Sales Cycle
According to Aberdeen, “on average, 18 percent of an enterprise’s sales cycle is attributed to contract creation, negotiation, and approval. For example, if a company has a sales cycle of 90 days, approximately 16 days are taken by contract-related activities.” Considering this critical importance of contract management, software that shortens the time to close can significantly reduce the overall sales cycle, especially if the software includes electronic signature capability.
By determining exactly how much of its sales cycle is taken up by the contracting process and how much revenue is lost by each extra day in the sales cycle, an enterprise can arrive at an exact number for the benefit of the faster closing that contract management software enables. This clear evidence of the importance of shortened sales cycles should also provide ample motivation throughout the organization to quicken the contracting process.
Increase in contract size
Because it results in more information and guidance for the sales team to work with while selling, contract management software usually results in larger average contract size. By comparing pre-software average size to the new average size, the revenue benefit of the software can once again be quantified. And by examining the contracts that grow in size, an enterprise can identify the steps and approaches that led to that growth.
Percentage of contracts that close
Contract management software also helps some contracts close that otherwise wouldn’t. The software ensures that all milestones are met, that appropriate customer-relationship actions are taken, and that legal complications won’t derail closing. By automating much of the contracting process, the software also frees up sales people to focus on selling rather than administrative tasks. And by fostering customer satisfaction, the software can increase retention – which almost always leads to a better closing rate.
The revenue benefits of a higher percentage of closings are obvious and can be easily measured. And by studying contracts that close versus those that don’t, salespeople can continually improve their closing strategies.
These measurements are not difficult to perform, and they each can serve as evidence of the advantages of a contract management system, while drawing attention to areas in which increased efficiency is needed and helping to identify what drives the best results.