Contract management KPIs: everything you need to know

Guides
January 13, 2023
7
min
Contract management KPIs are an effective way to measure the health of your contracting process. Find out what they are and how to track them in this deep-dive.

Contract management KPIs are a useful tool for making sure your contracting process runs smoothly and efficiently. But how do you get started? This Juro deep-dive tells you everything you need to know about setting and measuring contract management KPIs in 2023. 

What is a contract management KPI?

A contract management key performance indicator (KPI) is a measurement of how effectively a business manages its contracts

Contract management KPIs provide a benchmark for what effective contract management processes look like, and what results can be expected as a result of them. 

By establishing these expectations, legal and business teams can quickly identify which aspects of their contract management workflows are working efficiently and which ones require improvement. 

Like most KPIs, contract management KPIs play an important role in the success of a company, depending on its business model.

Why are contract management KPIs important?

Contract management KPIs are important because they ensure the contracting process, which is used to recognize revenue, runs smoothly. The KPIs establish standards for an effective contract workflow, and these standards are used to measure and monitor performance. 

If these KPIs go unmet, it’s usually because of inefficiencies or bottlenecks in the way a business manages its contracts. By identifying and fixing these problems, contract management KPIs enable you to build a contracting process that:

  • Enables you to increase yield and value from your existing contracts
  • Ensures that the business can recognize new revenue quickly and efficiently 
  • Provides a better, more professional contracting experience for new customers
  • Reduces the amount of time legal teams spend on routine contract admin work

Who is responsible for tracking contract management KPIs?

Contract managers are usually responsible for tracking progress against contract management KPIs. But in businesses without a contract specialist in-house, the role usually falls to the legal team.

The most important contract management KPIs to track 

To recap: we now know what a contract management KPI is and why it matters. But where should you start, and which contract management KPIs should you focus on? 

Well, every business is different, meaning that the KPIs you set will vary too. That said, there are a few contract management KPIs that almost every business can find value in tracking. Let’s run through them now. 

1. Duration of contract management lifecycle 

How long a contract management lifecycle lasts can indicate how efficiently the contract was managed. After all, most businesses want to get contracts signed as quickly as possible because anything that delays this progress can prevent them from recognizing value sooner.

Unfortunately, there’s no hard and fast rule about how long the stages of a contract lifecycle should last. It can vary depending on:

  • Contract value 
  • Contract type 
  • External approval processes
  • The goods and services being exchanged 

But there are some patterns. Higher-value contracts tend to have a longer turnaround time than low-value contracts. If contracts have a long lifecycle despite being low-value, it could suggest inefficiencies or bottlenecks in your contract workflow.

A popular way to measure the duration is by measuring ‘time to signature’. This represents how long a contract takes from initiation to the moment it’s fully signed. 

2. Close rates 

It sounds obvious, but it’s also important to measure how many deals you close - and how many you don’t. Another way to look at this is how many prospects end up signing a contract and committing to doing business with you. 

This is a sales KPI more than a legal department KPI. But the way contracts are managed can have a considerable effect (positive or negative) on how many deals you win, so it’s important for contract managers to have a good grasp of these numbers too. 

Studies consistently show that removing friction at the checkout can increase conversion. The same logic applies to business contracts. Not only do clunky contracting processes make your business look unprofessional, but they also make closing a deal and signing a contract painful for counterparties. 

Removing this friction makes it quicker and easier to finalize deals and get contracts over the line.

If closing deals faster is a priority for your business, it could be time to consider contract management software. To find out more about how contracting tools like Juro can help to speed up sales cycles and make closing simple, hit the button below.

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3. Contract value 

Contract value is another valuable contract management KPI to track. But like most KPIs, the value of a contract can be measured in a few different ways. 

Some businesses focus on Total Contract Value (TCV), which represents the total value of an individual contract or agreement. Others focus on the annual value of a contract (ACV), which measures how much value a contract generates per year. 

It’s also common for a business to look at its contracts collectively and calculate an average contract value across the contract portfolio. This is especially useful when it comes to calculating performance against other KPIs, like Customer Acquisition Cost (CAC) Payback Periods

To find out more about how to calculate and track the value of a contract, check out this guide to measuring contract value

4. Contract risk 

Contract management KPIs should also track contract risk and how successfully it is mitigated. 

However, this is a broad metric, so it’s best measured using more focused KPIs, like how frequently standard contract terms are varied. Standard contract templates ensure that commercial teams stick to the terms pre-approved by legal when drafting and negotiating contracts. When these terms are varied, contract risk increases. 

You can also measure contract risk in the context of value leakage. This is what happens when the actual value of a contract is lower than what parties expected. This can happen for lots of reasons, including weak negotiation strategies, missed renewal deadlines and a lack of due diligence.

5. Approval times 

It’s also worth tracking how long it takes for a contract to be approved. This contract management KPI is similar to the first, but it’s worth tracking as a standalone contract metric too. 

Friction and delays during the contract approval process can prevent contracts from progressing. Yet, it’s common for contract approvals to sit in legal’s inbox for days, sometimes weeks. This is especially true for scaling businesses with lean legal teams where competing priorities mean less time spent on contract review and approvals. 

By establishing targets for approval turnaround times you can make sure that your deals don’t lose momentum. 

6. Missed contract milestones 

Contract milestones are another useful way to assess how successful your contract management process is. Contract milestones describe contractual obligations that need to be met by an agreed date. 

If these promises aren’t met by this date, the contract milestone will be missed, and this can strain the relationship you have with your customer. At worst, a missed milestone can result in a breach of contract. But it can also mean contracts are less likely to be renewed. 

To track this contract management KPI effectively, you need to find a way to track your obligation due dates in the first place. 

Contract tools like Juro make this easy by using smartfields to track important dates within contracts. Juro then aggregates the key data in contracts and displays it in a customizable contract dashboard.

Why is it difficult to monitor contract management KPIs?

Knowing which contract management KPIs to track is a good start. But most businesses find it difficult to source and compile the relevant data in the first place. This is due to a lack of visibility over contracts. 

In other words, businesses don’t know where their contracts are post-signature, what’s in them, or how to share this information with the relevant stakeholders. This is because contracts are often scattered across local drives or shared drives, with none of the important data captured and no source of truth. 

This lack of visibility makes tasks like conducting contract audits and monitoring contract compliance near impossible.  

The good news? It’s never too early (or too late) to improve contract visibility and start tracking contract management KPIs. Plus, with the right tools in place, it can be simple. Here’s how. 

What is the best way to track contract management KPIs? 

There are lots of things you can do to make tracking contract management KPIs easier. For example, you can assign each KPI an owner for accountability, or you can audit your contracts more often.

However, the single most effective way to track contract management KPIs and your performance against them is to implement contract management software like Juro. Platforms like Juro enable legal and business teams to:

  • Create, review, approve, negotiate, sign and store contracts all in one centralized workspace, which provides a single source of truth for contracts and improves visibility 
  • Build customizable reports based on their contract portfolio, making it quick and easy to see the bigger picture when it comes to contract management 
  • Query contracts for important data in seconds using OCR functionality 
  • Quickly identify bottlenecks in their contract workflows with real-time kanban boards that show where contracts are blocked in their lifecycle
  • View progress against important contract management KPIs using Juro’s contract analytics feature 

Juro is designed to streamline contract management and improve visibility into contracts for your business. For a more in-depth walkthrough on how Juro can help your team to manage contracts and track KPIs more effectively, book a demo today. 

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