Smart companies carefully track their investments in every part of their business. By carefully monitoring and managing their return on investment (ROI) on major purchases, they protect their profitability and increase their opportunities for rapid growth.\n\n\n\nContract management software (CMS) is a critical tool for any business. CMS makes contract administrators and contract managers more efficient. But, how do you calculate the ROI of your CMS?\n\n\n\nThis is one situation where you cannot simply click a button to generate the metric you're interested in studying. \n\n\n\nUnderstanding the Business Contribution of Contract Management Software\n\n\n\nTo calculate the ROI of your CMS, you must first understand the business contribution your CMS, and your contract management team in general, make. Contract management doesn't fit into the standard box that many departments do because its value comes from the management of external relationships. \n\n\n\nThe function of your CMS is to make your contract management team better at their job. It streamlines the contract process, makes audits more efficient, collects data, generates easy to read reports, and serves as a central repository for contracts and contract-related documents. \n\n\n\nAny ROI calculation will need to take into account the value generated by each of these functions and weigh them against the costs of the software, its implementation, and its maintenance. \n\n\n\nSometimes the value that your CMS provides is in simply eliminating unpleasant, repetitive tasks that a staff person would otherwise have to do. Or, the value may come from making contract managers more efficient. Other times, the CMS's value will be easy to calculate because it is tied to a clear figure such as contract compliance penalties. \n\n\n\nTraditional ROI Calculations May Fail to Fully Capture Value\n\n\n\nTraditional ROI calculations often fail to fully capture the value that CMS provides because it looks for the value in the wrong places. The automation that CMS delivers may not be enough to result in a reduced headcount in your contract management department. \n\n\n\nAnother issue is that contract management departments often have little data available to use in a standard ROI. Often, these departments fall back on metrics like the volume of contracts handled or the avoidance of risk as measurements for ROI calculations. \n\n\n\nBut, the primary work of contract management is different than the operations part of the business. Contract management work involves reporting, support, compliance oversight, coordination inside the company, and coordination with contracting parties. All of these are tasks are hard to measure. \n\n\n\nAll of these factors make it hard to find a business use case for contract management using standard ROI methods.\n\n\n\nBut, most companies understand that contract management is essential. CMS is a valuable investment because it makes your contract management team much better at their jobs. \n\n\n\nThis isn't to say you can't put a number on the value generated by CMS\u2014you can, but you need to look for that value in non-traditional ways. \n\n\n\nSavings Provided by Contract Management Software\n\n\n\nOne simple way to start the ROI calculation of CMS is total the cost savings it produces. CMS lowers costs in four easy to measure ways:\n\n\n\nAutomation Fewer Compliance Penalties Overpayment Recapture Termination of Poor Performing Contracts\n\n\n\nWith the exception of automation, a strong contract management team should be producing some of these cost savings without CMS. However, CMS, when used properly, will increase the savings of what is possible without software. In running the ROI calculation, you will want to only count the increased cost savings the CMS produces beyond what the contract management team could achieve without the software. \n\n\n\nAutomation\n\n\n\nCMS uses cutting edge AI and machine learning to automate much of the work that a contract management team used to perform manually. These automation result in cost savings over three primary areas:\n\n\n\nStaff Time Legal Costs Audits\n\n\n\nSome of the ways automation decreases staff time include:\n\n\n\nEliminating manual filing of documents Eliminating time spent on searching for lost or misfiled contract documents Reducing the time spent on emails and other communications focused on sending reminders Reducing the time spent gathering data Reducing time spent on creating reports and tracking KPIs Reducing time spent monitoring contracts set to auto-renew\n\n\n\nCMS uses AI-powered search, cutting edge database design, and automated alerts to free up the contract management team to focus on relationship building and actual management activities. \n\n\n\nHaving all of the contracts in a digital repository with searchable tags is one of the greatest time savers. Automated alerts take the place of emails staff used to send to remind others in the organization to take action at different stages of the contracting process.\n\n\n\nAnother result of the automation will be the reduction in the contract execution cycle. But, this is a different value calculation. That is value the CMS adds to the bottom line; this part of the ROI calculation is only focused on the cost savings achieved. \n\n\n\nCMS reduces legal costs. With templates, better digital management, and better control over the entire contract lifecycle, less money will be spent having lawyers revise contract drafts. \n\n\n\nLegal costs are also reduced because CMS reduces contract compliance issues and contract disputes. The savings from reduced legal costs will be greater for organizations that use outside counsel for most of their contract issues.\n\n\n\nCMS also improves organizational efficiency. This means audits take less time because all of the relevant documents are easier to locate and process. Auditors spend less time generating reports. The data and analytics features of the CMS do much of the hard work for the auditor.\n\n\n\nWhen audits are faster, they cost less. But, even more important, when audits are more efficient companies can undertake more complex audits that result in further improvements to the contract management process. \n\n\n\nNever lose a contract again! Work more effectively, increase your revenue, centralize & secure your contracts. Available anywhere, anytime & on any device.Get your Free Demo today! \n\n\n\nFewer Contract Compliance Penalties\n\n\n\nCMS helps reduce the amount of money the company pays out in contract compliance fees. This is accomplished through alters and easier tracking and communication tools. Even the best contract management team is not able to manage the complexities of multiple contracts, as well as CMS, does.\n\n\n\nCalculating the savings from the payment of fewer compliance penalties is a straightforward process. If historical data has been entered into the CMS, the software itself can generate a report showing the amount of the improvement. \n\n\n\nOverpayment Recapture\n\n\n\nOne way organizations waste money is in the overpayment of contract compliance fees. A typical company does not have the resources to verify that the amount a contracting partner bills for compliance fees is accurate based on the terms of the contract.\n\n\n\nCMS allows contract managers to have more time and resources to evaluate passed contract compliance payments and to recapture any overpayments. \n\n\n\nLike the initial payment of contract compliance penalties, the savings CMS generates through overpayment recapture is simple to calculate. \n\n\n\nEnding Poor Performing Contracts\n\n\n\nThe last way CMS produces cost savings is through the termination of underperforming contracts. Sometimes contracts are automatically renewed, even though they shouldn't be. \n\n\n\nCMS solves this problem in two ways. First, it makes it easier to see the value of every contract. It's advanced reporting features can show any number of metrics, including cost savings for each contract. \n\n\n\nContract managers can easily see what contracts are not performing, and they can intervene to make sure the worst performing contracts are not renewed. \n\n\n\nCMS also sends out automated alerts before a contract is set to renew. This kickstarts the renewal review process. \n\n\n\nOver time, the savings from replacing poor performing contracts with better contracts with more reliable partners will significantly impact the bottom line of the company. \n\n\n\nMarket-Based Focus on Contract Management Software ROI\n\n\n\nWhile calculating the cost savings generated by CMS is useful, it is only part of the ROI the company enjoys. In order to calculate the rest of the value generated by CMS, a different process needs to be used that takes into account the actual business contributions of contract management and CMS.\n\n\n\nInstead of trying to use an internal approach in calculating the ROI of CMS, the better method is a market-based approach. This method looks at the value CMS generates from an external perspective. \n\n\n\nCMS increases the alignment between the organization and contractual partners. The market-based approach to ROI measures things such as:\n\n\n\nBusiness Relationship Efficiency Revenue Increases Opportunities Gained by the Company\n\n\n\nThis approach treats contracts themselves as assets and evaluates the ROI of CMS based on its ability to improve contract formation and to maximize the value of individual contracts through better business relationships.\n\n\n\nMaximizing Business Relationship Efficiency\n\n\n\nContracts are a function of relationships. If you want to maximize the value of a contract, you need to maximize the underlying business relationship. CMS is designed to remove internal barriers and inefficiencies to better business relationships with contracting partners.\n\n\n\nTo measure the value that CMS adds to contract assets, you need to evaluate the increase in the total performance of your entire contract portfolio. Using historical trend performance analysis, you will be able to see how much more value your contracts are generating since the implementation of your CMS.\n\n\n\nThis analysis is a useful proxy for the increase in the efficiency of your business relationships. This value is generated by a combination of better contract terms, more efficient contracting processes, and increased reputation as a result of stronger compliance processes. \n\n\n\nThere are two different types of contract compliance, and each type deals with relationships. Internal compliance is focused on your organization's ability to honor its obligations to its customers. External compliance is focused on making sure vendors are fulfilling their contractual obligations. \n\n\n\nCMS assists contract managers in improving the relationships with both customers and vendors. \n\n\n\nShorter Vendor Contracting Cycles\n\n\n\nAnother place where you can measure the business relationship efficiency produced by CMS is in the length of the contracting cycle with vendors. CMS shortens this time between the negotiation of the deal and the execution of the written contract.\n\n\n\nShorted vendor contracting cycles allows your organization to have faster turnarounds for your customers. The faster you can produce for your customers, the more sales you can make, and the more revenue you can generate. \n\n\n\nAnother benefit of shorter vendor contracting cycles that increase the ROI of CMS is the boost to your company's reputation as the quality and timeliness of your deliverables increases. \n\n\n\nRevenue Increases Provided by Contract Management Software\n\n\n\nWhile the traditional focus of contract management ROI calculations has been on cost savings and risk avoidance, much of the real value of CMS can be seen in increased revenues. This increase in revenues can be measured in three different areas:\n\n\n\nBetter Customer Relationships More Efficient Contract Renewals Shorter Sales Cycles\n\n\n\nBetter Customer Relationships\n\n\n\nCMS leads to revenue increases by improving customer relationships. The CMS does this through improving internal compliance, using automated reminders to make sure the company is prepared for the renewal of the deal and streamlining the contracting process.\n\n\n\nStronger customer relationships lead directly to increased revenues in three ways:\n\n\n\nContinued business opportunities with customers\nwillingness of customers to increase the volume of business\nCustomer referrals\n\n\n\nBecause CMS is a relationship tool, the ROI grows exponentially over time. As customer relationships strengthen over time, the revenue generated from those relationships also grow. \n\n\n\nEasier Contract Renewals\n\n\n\nCMS improves the contract renewal process. While many contracts are set to auto-renew, every account needs to be reviewed for profitability before it is renewed. CMS makes both automatic contract renewals and manual contract renewals more efficient.\n\n\n\nThe CMS makes it harder for bad contracts to slip through the cracks and auto-renew without being reviewed by a contract manager. Replacing unprofitable customers with better customers helps increase revenues. \n\n\n\nAnother benefit of CMS is that it makes creating a new contract with an existing customer easier. Much of the work can be automated. Customers are more willing to renew a contract when they not only have confidence in your performance, but they know you make the contracting process easier than other companies.\n\n\n\nShorter Sales Cycle\n\n\n\nThe time it takes to negotiate and execute a contract is lost time for the organization. It isn't making any money during the sales cycle. It cannot even do much to anticipate the sale. The faster deals can be closed, the sooner the sales team can find more customers, and the more revenue the company will earn.\n\n\n\nCMS streamlines the contracting process. It makes measuring the length of the process easy. It also improves contract document organization and communication. You can calculate how much revenue is generated per day the contract cycle is shortened. \n\n\n\nOpportunities Gained\n\n\n\nIf you want to capture the full value that CMS adds to your business, you also need to take into account the additional opportunities it generates.\n\n\n\nWhile costs and revenues are relatively straightforward to calculate and understand, opportunity generation is more speculative. However, it is a critical part of the value that CMS generates for businesses. \n\n\n\nThese opportunities come about because of:\n\n\n\nEasier Reporting Faster Analysis Better Business Intelligence\n\n\n\nCMS is a powerful tool that gives the organization access to data and analytics it either couldn't generate on its own or that are too time-consuming to be useful consistently. \n\n\n\nGet online in minutes, implement in hours, realize ROI in weeks! Easy-to-use, helps you increase productivity, contracts & revenue. Available anywhere, anytime & on any device.Try a Free Demo today! \n\n\n\nEasier reporting \n\n\n\nReports have been a part of the business from the beginning. However, today businesses need more sophisticated reports to understand what is happening right now, not just last year. It may take a team a week or more to generate the kind of reports that your CMS can generate in moments. \n\n\n\nFaster reporting allows the executive team to see real-time opportunities. Without this reporting, a company may not be agile enough to take advantage of limited-time opportunities. \n\n\n\nBecause of the power of modern CMS, there is an almost infinite number of reports that can be run. Any data that is tracked by the CMS can be turned into an easy to read report with the click of a button. \n\n\n\nFaster Analysis\n\n\n\nSometimes having access to data isn't enough. Sometimes what leads to new opportunities is the ability of a company to analyze and synthesize the data. Contract management professionals and data scientists are limited at the speed of their analysis. \n\n\n\nCMS makes analysis faster with the help of cutting edge machine learning technology. You can see hidden opportunities in the market because you have better data and can analyze that data into actionable intelligence faster with the use of CMS.\n\n\n\nActionable Business Intelligence\n\n\n\nThe third way that CMS helps generate new opportunities is by taking raw data, processing it, analyzing it, and producing actionable business intelligence. CMS can show you the places where your organization is struggling with vendors or customers and places where you surprisingly strong. \n\n\n\nEven more importantly, the CMS makes it easy to share actionable business intelligence with the right decision makers. You can find new opportunities because the CMS ensures the right people have the right information at the right time. \n\n\n\nConclusion\n\n\n\nThere's a reason so many companies are rapidly moving to CMS. But, if you want to accurately calculate the value the software is generating, you need to long beyond just the cost savings produced by the automation. \n\n\n\nWhile that cost saving is important, and part of the ROI, CMS provides your company with increased revenue by allowing your team to maximize business relationships with vendors and customers, and by giving you access to actionable business intelligence that cannot duplicate without CMS.