When it comes to contract management, tracking CLM processes is the best way to make the necessary changes and measure the accomplishments. However, a wide variety of contracts can make it hard for you to evaluate thoroughly. In such cases, CLM metrics come handy to help you track your company’s performance.
Organizations must track different metrics to ensure the performance and efficiency of their CLM process. Keep reading this article to learn about top contract lifecycle management metrics.
What are the contract lifecycle management metrics?
The data points used to measure Contract Lifecycle Management’s efficiency and efficacy are known as contract management performance metrics. They can directly impact the net earnings of a company.
Contract lifecycle management covers the entire life span of a project. The CLM metrics determine the performance and success of that project. These metrics are also known as Contract Management KPIs (Key Performance Indicators).
Contract Lifecycle Management Metrics
Following are the four most crucial lifecycle management metrics or Contract Management KPIs:
1. Process Metrics
Process metrics provide qualitative as well as quantitative analysis of a particular task. These metrics can help you identify the areas that need improvement for better results. To assess the performance of a business, it uses standard measurements.
Here are some examples of those measurements:
- The ratio of successful outputs to the resources used
- Number of errors found during the project’s life
- Number of new contracts generated
- Number of completed contracts
- Number of active contracts
2. Efficiency Metrics
These metrics are essential for tracking the performance of Contract Lifecycle Management. However, they are quite tricky to track.
Efficiency metrics have different aspects, one of which is the time from the generation of a project to its signing. The more rapidly the signing is completed, the earlier the operations can start, and the revenues start to come early.
Some other aspects of efficiency metrics include the average number of days needed for the negotiation and execution of a project. The turnaround time for projects is also a part of efficiency metrics.
3. Contract Performance Metrics
These metrics measure the potency and effectiveness of a contract in different ways. Some Contract Performance Metrics are:
- Annual contract value: It estimates the value of an ongoing project by finding out its annual worth.
- Vendor fraud: It detects potential fraud to keep the business secure.
- Order Value Variance: It tells about the areas of a business that need more resources for higher profitability.
- Terminated contract remaining value: It informs business owners about credits and outstanding bills of the completed projects.
4. Contract Risk
Contract risk metrics focus on keeping business practices in accordance with industry standards. If the adopted practices of a company are not up to the mark, these metrics indicate the need for their improvement.
Below are the most critical contract risk KPIs:
- The number of contract terms deviating from the standard clauses.
- Improper signature approvals or vendor authorizations.
- Complaints resolved per year.
- The aggregate of agreements expired without a renewal date.
How to choose which contract lifecycle management metrics to track?
Now the important question is how will you decide which metrics to choose? To make that simple, we have brought you the factors that must be considered while choosing CLM metrics.
Let’s check them one by one:
Understand Your Business
Understanding your business is the first and foremost thing you have to do before deciding on the KPIs to track. Different businesses have different sorts of operational activities, different target audiences, and different scales for measuring success.
So, the type and dynamics of your business should decide the right CLMs to track for your company.
Know Your Goals
An important question that a business owner needs to answer before deciding on KPIs is, what do I want to achieve? Each business has different needs, and the owners target specific thresholds they want to reach.
Imagine if a business is focused on bringing in a higher number of influencers in a short time. Which CLMs should it target? Quite obviously, performance metrics and efficiency metrics are the two KPIs to track for such a business. Similarly, financial metrics are a must to track if a business is keen to generate greater revenue.
So, the right metrics to track for a business heavily depend on that business’s needs and goals.
Consider the Ease of Tracking
Some Contract Lifecycle Management metrics are easier to track, while others are quite complicated. Ideally, a CLM should be tracked using a convenient tool that is capable of generating automated reports. Using tools and automated reports not only makes the process faster and more convenient but also reduces the risk of error.
Therefore, the CLMs you are tracking should provide you necessary information without asking for too much effort.
Importance of contract CLM (contract lifecycle management) metrics in business
Contract Lifecycle Management is important for the sustainability and growth of a business. It allows you to keep track of the customer’s satisfaction regarding your products or services. Consequently, you can take steps (if required) to retain your current customers. Also, you can get an idea of the changes that should be made to bring in more customers.
Moreover, CLM metrics are a perfect way to keep track of what’s going well and what isn’t in your business. They let you know the revenues and profits you are generating, the efficiency of your work, and also the rate of satisfaction of your customers. Using all these parameters, you or any business owner can do two important things.
Firstly, you can assess both the qualitative and the quantitative aspects of its products or services. Secondly, you can ensure better performance by modifying the negative aspects of your business and by keeping up the positive aspects. Hence, if CLM metrics are correctly used, they can help your business show substantial growth and improvement in a relatively shorter period of time.
Tracing the performance of a project is significantly important for a business. It is the best way to learn about past mistakes and overcome them to improve. So, to ensure your CLM process is efficient, you should track the above-mentioned metrics.