Last updated on 

May 30, 2022

How To Measure The ROI Of Contract Management Software

How To Measure The ROI Of Contract Management Software
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How To Measure The ROI Of Contract Management SoftwareHow To Measure The ROI Of Contract Management Software

Are you looking to improve the way your company deals with its contracts? A smart businessman never commits to anything without gauging the potential return on investment. That’s why you’ll want to do the same for the potential ROI of contract management software. We’ll teach you exactly how to measure it, but first, let’s talk about its general advantages.

Why is Strategic Contract Management so important?

Be it small or large, when you run a business, there’s a continuous stream of contracts to deal with. For your company, this inevitably means having to spend valuable resources. As in any other aspect of doing business, you can spend these resources more or less efficiently. Depending on how you do it, you can affect your bottom line figures either positively or negatively.

You might wonder if contract management really has anything to do with actual profitability. According to the International Association for Contract and Commercial Management, the answer is an unequivocal yes. The research conducted by this independent association is invaluable to any business looking to improve its bottom line. It proves that companies are losing a staggering nine percent of annual revenue due to poor contract management.

Of course, avoiding such losses and increasing overall profits are the ultimate goals of business in general. When it comes to dealing with contracts, this is where strategic contract management comes in. How does it help you improve your bottom line? The goal is to:

  • Streamline all processes
  • Decrease risk
  • Increase ROI   

These days, implementing strategic contract management has become synonymous with using contract management software. However, no business is the same. What works for one wouldn’t necessarily work for others. The best way to gauge whether such software would be good for your company is to measure its ROI. 

What should you expect when measuring ROI in software use?

Even if you already used contract management software, you wouldn’t find it all too easy to calculate its ROI. Why is this so? Because it’s not just about the overall profitability of a company before and after implementing a new system. 

Measuring the ROI of contract management software on the bottom line is not a straightforward issue. For example, your company could show a nine percent increase in profitability at the time of your measuring the ROI. However, this number could be even higher if you took into account how many new opportunities are being generated. That’s not an issue just with contract management. It has to do with general difficulties of measuring ROI in software use.

Luckily, not all is lost. You can still do a qualitative measurement of ROI in software use. Of course, it’s not as exact as a quantitative method would be. However, it’s more than reliable enough to gauge whether you should give contract management software a try.

What are the key Contract Management performance metrics?

When you measure the ROI of contract management software, you need to look at a whole set of factors. These all depend on what kind of business you’re running. However, it’s also helpful to get familiar with the three most important KPIs of such software in general. These contract management performance metrics are:

  • Contract efficacy
  • Contract efficiency
  • Contract risk

Contract efficacy

When we talk about contract efficacy, we talk about actual results that contract management achieves for your business. For example, you could look at the number of contracts per type or customer, as well as annualized contract value. Basically, your metric could be anything that gives you an idea of how much value your contracts are bringing you.

Contract efficiency

On the other hand, contract efficiency is all about the balance between input and output. Ideally, you’d spend as few of your own resources as possible to achieve a satisfying output. For example, you could look at contract cycle time or number of missed milestones. It’s about anything that can tell you how efficiently your contracts are dealt with.

Contract risk

The last of the three contract management performance metrics is contract risk. This one tells you how big of a risk there is of contract mismanagement. For example, you could look at the number of disputes, delayed approvals, contracts that aren’t being renewed, etc.

How do you go about measuring the ROI of Contract Management Software?

You can measure the ROI of contract management software by looking at potential gains in the following areas:

  • Time spent working with contracts
  • Time spent managing contractual obligations
  • Time spent managing missed renewals
  • Time spent auditing contracts
  • Contract dispute costs
  • Sales frequency
  • New opportunity generation

What does this mean? It means you can measure the potential ROI of contract management software simply by asking yourself the following questions:

Could you spend less time working with contracts?

Contract management software makes it easy to find all the existing documentation. It streamlines processes by using standardized language and editable templates. Basically, it eliminates manual handling and reduces time spent working with contracts in general.

Could you spend less time managing contractual obligations?

Obligations such as renewal deadlines waste time when they aren’t properly managed. Quality software eliminates the need for employees to keep them in mind, work on organizing them, etc. In turn, it helps reduce the time needed to manage any and all contractual obligations.

Could you spend less time managing missed renewals?

Poor contract management inevitably leads to missed renewals. They, in turn, create sets of entirely new obligations that could easily have been avoided. A streamlined process offered by contract management software helps you eliminate the risk of this ever happening.

Could you spend less time auditing contracts?

A good contract management system is the one you audit on a regular basis. Audits help you gauge if there are any problems with the way your contracts are dealt with. However, doing them manually takes a lot of time, which is time you could spend doing more important things. Having that time freed up is one of the advantages of contract management software.

Could you reduce the costs of contract disputes?

Risk management is one of the strong suits of contract management software. After all, there won’t be as many disputes if all obligations are dealt with in a timely manner. While employees can be responsible and reliable, nothing beats algorithms when it comes to precision and punctuality.

Could you increase sales frequency?

A poor contract management system negatively affects the contract lifecycle. In other words, it makes your company slower at processing each contract all the way to contract renewal. Contract management software fights this by streamlining the process and in turn, increases your company’s sales.

Could you increase new opportunity generation?

Quality contract management software comes with analysis and reporting functions. If you want to increase your company’s profits, this presents an excellent opportunity to troubleshoot existing processes. It also gives you insights into companies you’re doing business with and ultimately improves the quality of your sourcing methods.

Ensure the ROI of contract management software with Contractbook

If the answer to all or most of the above is yes, the ROI of contract management software for your company could be substantial. We at Contractbook strive to provide you with the most sophisticated solutions for all your contract management needs. Our software features:

  • Standardized template libraries that make generating new contracts much faster and more consistent
  • eSign functionality that speeds up the contract approval process and cuts down your business costs
  • Automated workflows and reminders that save your employees’ time, reduce your business costs, and increase your sales frequency
  • Digital contract repository that makes contract audits much more streamlined
  • Data syncing and contract tracking functions that help you see the big picture and generate new opportunities for your business

If this sounds like something your business could benefit from, don’t hesitate to get in touch.

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