Five Contract Management KPIs That Your Business Team Needs to Agree On

Five Contract Management KPIs That Your Business Team Needs to Agree On

by admin
October 31, 2019

Short-term wins do not necessarily translate to long-term growth for your business. When you want to be competitive for the long haul, attention to detail is essential. You need to measure the different growth aspects of your business and identify areas that need changing and any improvements you might need to make. Ideally, measuring the specific KPIs for the performance of your business is a great way to achieve this. 

In a nutshell, Key Performance Indicators are a set of quantifiable measurements that gauge the long-term performance of your business, and you can dive deep into identifying and measuring core KPIs with our guide. When used in the right way, they can offer decision-making insights to C-level executives and departmental leaders. They can also provide insights on the different changes that need to be made to contracts to ensure you are optimizing them for long-term growth. 

But some of the most valuable KPIs aren’t metrics that you can decide for yourself. Your CFO needs to set the threshold for acceptable discounts. Your CIO has to be part of the conversation when you’re setting Service Level Agreements for online services.

So bring up these KPIs at the next executive meeting to get concrete answers:


1. Internal Process Quality

The quality of your internal processes is tied to a variety of factors of your business, including:

  • Customer satisfaction rates
  • Employee safety
  • Your business’s reputation

Ideally, the more efficient your internal processes are, the easier it will be to develop a competitive edge in your industry. In turn, this can earn you more customers and contracts since you will be an inviting business to work with. 

Quality processes can include the quality of how you handle invoices, how you store data, the manufacturing process, and even customer service. The same bottlenecks holding up your contract management may be impacting your whole business. You need to create KPIs that will identify all these aspects and have individuals monitoring the progress of every KPI that impacts their particular department.

2. Average Spend per Sale

How much does each sale cost you on average? Remember, the more sales you make, the higher your revenue, owing to the economies of scale. But that doesn’t guarantee profitability. Ideally, you ought to ensure that everything you spend towards the fulfillment of a sale is optimized. Customers need to feel the value of your product offering. Calculate and continue to monitor your CAC, or customer acquisition cost, to stay on target.

Measuring this KPI and working with your CMO will help you understand customer purchasing behavior. You can set a specific average spend per sale, and make product tweaks in anticipation of any changes. This will make it easy to measure the success rate of product promotions, upselling efforts, and even customer loyalty campaigns. When it comes to contracts, it can provide you with insights that will help you create deals that provide the most value per sale.

3. Working Capital

Sometimes, big business opportunities might show up when you might not have the funds to channel into them. For example, a big client might want to get into a contract with you, but the fact that a previous client hasn’t yet settled their invoices makes it tough to start this new contract. The best way forward might be to get a loan from a bank or investor as you wait for the invoice to be settled.

However, if you aren’t tracking your current level of working capital, you can get surprised when a major opportunity knocks on your door. Tracking working capital will offer you insights on how to spare some cash to use in these types of situations. Also, it can help you identify whenever it is critical to push clients to settle overdue invoices.

4. Effectiveness of Income Sources

In case you have a variety of income sources, you need to understand what sources bring in the most profit. This can be advantageous in two ways:

  • In determining the most profitable parts of your business. For instance, a marketing agency might identify that it earns more revenue from content writing than from Facebook ads.
  • In making informed decisions that can help grow your revenue sources. For instance, the same marketing business can choose to focus more resources on content marketing as well as look for strategies that make Facebook ads more profitable. 

Monitoring this mix of income sources can help you create a portfolio that will propel your business’s growth. It also becomes easy to identify any setbacks. For income sources that are only draining your resources, you can easily get rid of them.

5. Revenue Concentration

While this is closely related to income source KPIs, it can help you keep your business afloat. The goal is to ensure that you have diverse sources of income. In case the bulk of your revenue is coming from one or two clients, you risk going under if you lose the clients. This can also apply for suppliers — more suppliers translate to fewer risks of failed deliveries.

To calculate the basic income percentage of each client, you need to divide the income gained from each client by the total revenue and multiply it by 100. It is wise to look for other clients if it appears that one client is making the most contribution to your monthly income. Big core clients are important sources of revenue, but it pays to have other small income sources to protect your business.

KPIs will offer you enough attention to detail to identify the changes you need to make for your business. They not only give you insights into the top-performing parts of your business, but they also help you remain afloat during tough times. Concentrate on measuring KPIs to rely on educated insights for business growth.  

You may have noticed that a lot of these KPIs center around the money that the contracts represent. So make sure you have a solid relationship with your company’s finance team — as well as the sales teams — to make sure you’re all on the same page for scoring your contracts. If you already have strong KPIs in mind, sign up for a trial of our contract management software to put them into action.

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