11 CLM KPIs Every Business Needs
By David Parks
A critical component to improving the performance of your contracts and contract lifecycle management (CLM) process is to establish measurable key performance indicators (KPIs). But where do you begin, which CLM KPIs should you track, and how do you tackle establishing them?
It all starts with the data in your contracts. The million-dollar question, however, is are you able to leverage and harness all of that contract data in a meaningful, accurate, and effective way to deliver your business the insights it needs? After all, KPIs are all about data – setting benchmarks and tracking your performance against them. Without the data, it’s impossible to do. Contract management software from Contract Logix makes leveraging your data very easy and insightful.
The next important question then becomes what are the right KPIs for your business and how do you leverage them to optimize your contract management strategy and process. Perhaps it’s strictly for performance management of your contracts and contracting process. Or, maybe you want to support and influence your business objectives such as shortening contract cycles, enabling digital transformation, or improving customer experience.
Whatever the case, we examined all these items in detail during a recent webinar called 11 CLM KPIs Every Org. Needs. This article summarizes each one of the CLM KPIs we covered but you can access the full webinar here.
1. Average Number of Days in a Contract Lifecycle
We all know that contracts are complicated. In fact, most people would say they are more complex than ever. And usually, when things get complicated, they tend to take longer. That’s why this KPI is a good foundational one. It’s all about tracking the average total number of days in a contract lifecycle. Every contract will be a little different but by benchmarking this you can begin to identify opportunities to improve it. Maybe NDAs are taking too long to execute early in a relationship and that is slowing down the rest of the process?
2. Average Time to Achieve Contract Milestones
This KPI is focused on the pre-execution phase of a contract and understanding the average time to reach and execute each contract milestone. And by milestone, I am referring to activities like requesting an agreement or drafting one or negotiating it. How long does it take, are those timeframes acceptable, and what can be done to improve them?
3. Ratio of Complete, Outstanding and Missed Contract Obligations
This KPI is important to contract risk management because the consequence of a missed obligation can be small or it can be huge. We hear this challenge from prospects all the time. They missed a contract obligation like an autorenewal they intended to terminate but didn’t in time because they didn’t’ have a proper system in place to track it. The result was unnecessarily costing the business a lot of money. For this KPI, you’ll want to understand the ratio of complete, outstanding, and missed obligations and see that varies by things like department.
4. Total Value of Active Contracts
This total value of all active contracts being managed is a good KPI to monitor the health of not just your CLM process, but your overall business. It’s important to benchmark and track this KPI at a lot of different levels and through many filters like renewal dates, risk levels and scores, contract types, vendors, customers, etc.
5. Total Volume of Contracts in Process
Contract volume is related to the contract value KPI but a little different because now we’re looking at the total number of contracts in the process. This is a good way to help monitor workloads and high-level sales and purchasing activity. For this KPI, you will want to be able to track it by all your different contract stages such as request, approval, and signature as well as your different contract statuses like active or draft to get the most visibility into your process.
6. Total Number of Inbound Contract Requests
Many times, contracts get requested over email or even hallway conversations which makes this KPI hard to track without a proper system. Regardless, knowing the total number of inbound contract requests your team has to manage is key. It is also just as important to understand the nature of those requests. Are they for your paper or are they contracts getting submitted on third party paper? And from a time management perspective, what percentage are accepted, rejected or declined and why? For example, if you have a higher number of rejected requests maybe it is because the requestor isn’t providing enough info so you could improve that with formal request forms with required fields.
7. Number of Contracts by Risk Level
Obviously, risk is an important topic when it comes to CLM KPIs since every contract has some form or level of risk. This KPI is about tracking the number of contracts by risk level and type. It is essentially assessing your overall contract risk. First, if you have not already, you’ll want to score the risk consequence and probability of each contract. Then, establish the acceptable thresholds for risk. It is also good to track your different risk types like buy-side vs. sell-side or financial vs. brand risk.
8. Number of Contracts by Required Compliance Controls
Compliance is critical theme when it comes to CLM KPIs and it is related to the previous KPI about risk. There is no doubt compliance is a top of mind concern for anyone managing contracts, especially if you’re in a highly regulated industry. For this KPI, one of the things you want to track is the number of contracts by required compliance controls from both an internal and external regulatory requirement perspective.
9. Percentage of Failed Contract Renewals
This KPI comes up in a lot of conversations because it has such a visible and high impact on a business. For renewals, this KPI is the percentage of failed customer contract renewals and you will want to track them both by autorenewals and standard term ones as well as by other key data points in your business like products or customer types or services. One of the big advantages of this KPI is it allows you to identify ways to prepare for and get out in front of all your renewals, especially ones you’ve scored as high risk.
10. Frequency of Approved Language Use
For this KPI, you want to benchmark and track the percentage of contracts generated on your own paper vs. third-party paper. Clearly, the more agreements you have on your paper the more likely the use of your legal approved language and the lower the risk. And, depending on how the split looks, you can identify some strategies to shift it even further in your favor. Using clause & template libraries will help a great deal in this effort.
11. Percent of Contracts Executed with E-Signatures
And our bonus KPI #11. E-signatures which are already quite widespread and popular but even more so recently with everyone working remotely. When it comes to ESIGN, you want to track the percent reduction on the total number of days from when the contract is sent out for signature to the execution of it. E-signatures can significantly accelerate that timeframe so pushing adoption of them should be a priority.
One of the fastest and most effective ways to optimize and improve the performance of your contracts and contract management processes is to establish CLM KPIs. This allows you to leverage the wealth of data in your contracts to deliver strategic and actionable business insights. By implementing the 11 CLM KPIs in this article, you will be well on your way to contract management success.
Interested in learning more? Schedule a conversation with one of our contract management experts today.